In addition, financial integration enhances competition in each locality since savers and investors are not constrained to deal only with local suppliers of financial services, but can search for the most efficient supplier in the entire integrated area. 6. It is uncontroversial to suggest that financial integration within a given jurisdiction will be beneficial for the economy as a whole. Few would question that financial integration within the United States, for example, has made a positive contribution to that country’s economy. And, I am sure that the increasingly comprehensive financial linkages across provinces in Mainland China, would make the mobilisation of the high savings and the allocation of capital there more efficient, leading to sustained economic dynamism. But the benefits of financial integration need not occur only within a single jurisdiction. Observing from afar the process of economic integration in Europe, it is clear to me that financial integration across national borders will make a positive contribution to the region’s economic development. But I shall leave it to other speakers in our conference, particularly those with first-hand experience in Europe, to elaborate on that point. 7. Here in Asia, financial integration across economies has not proceeded as far as within either North America or Europe, even though the degree of economic, in particular trade, integration within the region has been rising sharply. As I have pointed out elsewhere, in the financial sphere Asian economies are less integrated with each other than with economies in the rest of the world.

Having made the economic case for increased financial integration allow me to spend a few moments outlining some practical steps that may be taken to achieve it. First, it is necessary to establish linkages between jurisdictions across the whole spectrum of financial infrastructure – the trading, payment, clearing, settlement and custodian systems for money and for financial instruments. This would facilitate the movement of savings between jurisdictions and make cross-border transactions more efficient. In this age these linkages are neither difficult nor costly to establish as the technology, in the form of electronic messaging platforms of acceptable security, is already available and in international use. 15. The second element concerns the relaxation of non-supervisory restrictions, where they exist, against access by foreign financial intermediaries to the domestic financial markets. The size of  2  BIS Review 14/2006  financial intermediaries, measured for example in terms of capital, is often a barrier to market access; but, as we know, size is not necessarily a good indicator of quality. Capital adequacy, assessed objectively by reference to risk, provides a better safeguard. Greater competition, wherever it comes from, also enhances efficiency, although allowances should be made for the weaker domestic institutions to enable them to cope and find viable long-term solutions, in the interest of financial stability. 16. The third element concerns the harmonisation of standards in the financial system. A degree of harmonisation, at least the adoption of minimum acceptable international standards, is essential for improving investor confidence and enriching the flow of capital within the region.