The strengths within Asia has been most evident in the recent global financial and economic crisis. Asia has demonstrated remarkable resilience in the face of the unprecedented international financial crisis. Most regional economies have seen positive growth since the second half of 2009, with prospects for a sustained recovery. The region has benefited from strong fundamentals and the financial reforms undertaken in this recent decade which has enabled the region to recover faster with a stronger performance. BIS Review 43/2010  1  Several other factors have contributed to this early recovery. First, the region had policy flexibility to respond to the consequences of the international financial crisis. Strong fiscal positions, including relatively low public debt levels, have allowed many Asian governments to implement larger fiscal stimulus. Second, the financial sector in the region is in good health. Disruption to credit flows to the private sector have been avoided. Third, households and the corporate sectors in Asia are not over leveraged, and thus are in a better position to resume consumption and business activity once confidence had returned. Fourth, Asia is also not plagued with wide scale unemployment. Fifth, increased intra-regional trade has contributed significantly to the resumption of international trade in most of the regional economies. The strong surge in exports in the regional economies in the recent months is due primarily to the significant rise in intra-regional trade. Strengthening of regional integration Regional integration will become an increasingly important factor in sustaining the future growth in the region.

The increased international integration of both capital and goods markets has brought a huge increase in the scale of cross-border financial activity. The largest global financial institutions now play significant roles in a large number of financial systems outside of their home market. These changes are likely to affect the manner in which financial shocks in one region are propagated to other regions. Finally, we have witnessed an increase in the degree of concentration in some markets, a development that has the potential to make the system more vulnerable to the deterioration in conditions at one of the major bank or nonbank financial intermediaries. The degree of systemic risk presented by these changes depends importantly on two things. It depends on the robustness of the infrastructure that supports these markets. And it depends on the level of reserves, capital, margin and collateral that the major financial institutions hold against risk, which is in part a function of the strength of risk management systems. In both of these areas, market practice has made significant progress over the past decade, and further improvements are underway. A few quick points about two areas in which we believe further progress offers the highest possible return in terms of improving the overall resilience of the financial system. In the broad area of market infrastructure, we think the greatest near-term imperative is to strengthen the post-trade processing systems that underpin the rapidly growing over-the-counter derivatives market.