2  BIS Review 69/2007  Regional economic integration has increased rapidly in Asia in recent years, but these economies still seem a long way from the point where economic or political conditions would make a compelling case for some kind of regional monetary integration. (In Europe, of course, the political case for monetary integration largely preceded the economic argument.) For Asian economies, as for most emerging economies today, the principal challenge is to establish conditions that will enable them to prosper in a world where their exchange rates adjust more freely to changing fundamentals. Capital-account liberalization A third important conclusion from the crises relates to strategies for capital-account liberalization. Although this was not the conventional wisdom at the time, I think the evidence supports the view that the policy mistakes that contributed to the crises lay not in the decision to become more open to capital flows, but in the how those governments chose to become more open. The supervisory and regulatory regimes over the financial system did not provide a strong enough framework of incentives for risk management and controls over financial intermediaries. But the more consequential mistake was that the crisis economies each in different ways chose to liberalize capital controls selectively. Each had in place other incentives or distortions that led to an excessive reliance on short-term borrowing through the banking system. These weaknesses left the financial system and the economies as a whole with less capacity to manage the greater pressures and risks that came with openness to capital flows.

4  BIS central bankers’ speeches  Iyer, R. and J.L. Peydró (2011), Interbank Contagion at Work: Evidence from a Natural Experiment, Review of Financial Studies. Jiménez, G., Mian, A., Peydró, J.L. and J. Saurina (2010), Local versus Aggregate Lending Channels: The Effects of Securitization on Corporate Credit Supply in Spain, NBER WP 16595. Jiménez, G., Ongena, S., Peydró, J.L. and J. Saurina (forthcoming), Credit Availability: Identifying Balance-Sheet Channels with Loan Applications & Granted Loans, American Economic Review. Jiménez, G., Ongena, S., Peydró and J. Saurina (2011), Macroprudential Policy, Countercyclical Bank Capital Buffers and Credit Supply: Evidence from the Spanish Dynamic Provisioning Experiments, Bank of Spain mimeo. Jiménez, G., Ongena, S., Peydró-Alcalde, J.L. and J. Saurina (2011), Hazardous Times for Monetary Policy: What do 23 Million Loans Say About the Impact of Monetary Policy on Credit Risk-Taking?, CEPR DP 6514. Jiménez, G. and J. Saurina (2006), Credit cycles, credit risk and prudential regulation, International Journal of Central Banking. Kalemli-Ozcan, S., Pappaioannou, E. and J.L. Peydró (2010), What Lies Beneath the Euro, Journal of International Economics. Maddaloni, A. and J.L. Peydró (2011), Bank Risk-taking, Securitization, Supervision, and Low Interest Rates: Evidence from the Euro-area and the U.S. Lending Standards, Review of Financial Studies. Martínez-Miera, D. and R. Repullo (2010), Does Competition Reduce the Risk of Bank Failure? Review of Financial Studies (2010). Matutes, C. and X. Vives (2000), Imperfect competition, risk taking, and regulation in banking, European Economic Review.