An important achievement within the EMEAP process has been the establishment of a Monetary and Financial Stability Committee, or MFSC, which is charged with the mandate of facilitating greater regional collaboration in preserving monetary and financial stability as well as in the development of regional financial markets. Since its establishment, the MFSC has exceeded expectations in terms of the commitment towards supporting regional monetary and financial surveillance, and in advancing efforts to institutionalize cross-border crisis management and resolution arrangements. These developments will contribute towards reducing any procyclical impact of Basel II and facilitating over time, refinements to the risk parameters that are more appropriate to local and regional experiences. The continuation of such efforts at the national and regional levels will reduce the prospects for potential disruptions in the regional financial systems. One of the most important consequences of Basel II lies in the effect that it will have in sharpening the focus on corporate governance in banking institutions. While there has been considerable attention focused on the quantitative implications and operational aspects of the Basel II framework, there has been less attention given to the corporate governance dimensions associated with its implementation. The expectations on the board and senior management oversight are significantly higher under Basel II. The board of directors is expected to ensure that a sufficiently strong risk control framework is in place before banks can adopt the more advanced approach.

The ultimate objective of Basel II is to achieve more resilient banks, and thus preserve the broader financial stability. In the Asia Pacific region, thirteen countries have adopted the standardized approaches under Basel II for credit and operational risks. A number of countries have also either already adopted or announced plans to adopt the more advanced approaches by 2010 or earlier. Malaysia adopted the standardised approach this year and has recently issued a concept paper detailing the parameters for the implementation of the more advanced approach to be adopted in 2010. The global economy has entered a period of greater uncertainty, with a number of developments that are taking place in some of the developed economies having destabilising implications on the global economy. The international financial markets continue to be in turmoil, triggered by the developments in the subprime market in the United States and resulting in the tightening of liquidity in the credit markets. The impact of these developments on the financial position of financial institutions has affected the functioning of the financial markets and the financial intermediation process. This has required interventionist policies to contain its systemic implication. In addition, the global economy has been through a period of high commodity and energy prices which has not only translated into higher inflation but has also contributed to dampening economic growth. While the Asian region has experienced robust growth in the first half of 2008, the regional economies will be affected by these developments.