2  BIS central bankers’ speeches  Also the influence and discipline from the IMF program or FSAP may have been somewhat countered by growing importance of regional financial assistance mechanism with their own governance. Each country or region would be more likely to adopt these new standards if they buy-in to the rationale of the reform. Inclusiveness and coordination are therefore keys for commitment, and the pillars of the new governance for bodies such as the Basel Committee and Financial Stability Board; this is perhaps the new Bretton Woods. Turning to longer-term challenges and strategy, Asia’s increased economic importance will rise as a consequence of its development efforts in liberalizing the economy and the financial system, allowing market forces to enhance efficiency and productivity. These forces will accelerate with increased integration of the ASEAN Economic Community, ASEAN plus 3, and plus 6. For intra-Asia’s financial flows, Asia is not “homogenous” – the “North Asia” and financial center economies are developed, and some are mature economies facing their own challenges. The rest of Asia is emerging economies, some facing middle income trap, and some facing the transition challenges from centrally planned to market economy. “North Asia” will tend to have savings surplus, and need growth potential and to export of FDI. “South Asia” will need savings to finance investments. There is a natural synergy in resource allocation, industrial and logistic linkage. Thus, regional financing and growing role of regional-centric financial services would naturally follow.

So is this the new paradigm of known-unknown? That is, we know what the major drivers of change are, but we cannot forecast outcome. So the key strategic challenge is how to deal with Known-Unknown. For the short-term, the key priority is dealing with the fragile and volatile global economy. Stability is the priority for banks and regulators. The strategic policy question is how to get the right balance between risk and return, stability and growth. Weaker banks will retrench, leaving rooms for the few stronger banks to take up market share. In Asia, we have seen banks from the Asia-Pacific, notably Japanese, Chinese, and Australian banks moved into market space where European and U.S. banks have retracted. ASEAN banks are also shifting strategy to play a greater role to support their conglomerates in the regional expansion. If this regional banking trend continues, what are the implications for banks, regulators, and central banks? While the region has so far remained relatively resilient to the first round impact of European bank deleveraging, there is significant concern about the second round impact through the slowdown in global trade and economy that will impact growth. Another known-unknown in the short-term is the impact of interaction of various traditional and non-traditional policy measures, such as monetary policy, prudential policy including macroprudential. As a result of this crisis, the acceptable policy space has been significantly widened, for example, macroprudential policy now includes sectoral measures such as those to prevent property bubbles or to control adverse impact of capital flows.