Even when the countries deregulated financial systems and freed their capital accounts, they did too little to strengthen financial supervision and regulation, develop liquid markets, and promote sound corporate governance. International creditors were eager to participate in the Asian miracle, and accepted a close nexus between borrowers and lenders as the "way" business was done in Asia. But lending on the basis of familiarity and relationships is prone to abuse and a recipe for financial mishaps. The Asian crisis of 1997/98 vividly brought home the risks of this approach. The Asian crisis is now past, but we are not back to the status quo ante. The situation today is troubled, but it is different from that in 1997/98. Unlike then, there is no contagious financial panic, no more hot money to flee the region, crashing currencies and economies one after the other. The markets are more subdued, although they are not immune to shocks, especially from political developments. Global investors and traders have been chastened by the experience of the 97/98 crisis, and now differentiate more carefully between economies, the different problems that they face, and the varying degrees of seriousness with which they are tackling their problems. Part of the current problem is cyclical: Asian countries are major exporters to the US, and have been affected by the current slowdown in the US economy. This will pass when the US economy picks up. But many Asian economies also have serious structural problems, especially in their financial systems. Resolving these problems will be an arduous task.

In some instances, we have found it possible to adopt standards and practices of international bodies and foreign regulators wholesale. For instance, the Committee on Disclosure and Accounting Standards, a private sector led body formed to review disclosure and accounting standards in Singapore, has recommended that Singapore should adopt International Accounting Standards (IAS) as the accounting standards for Singapore. In terms of mutual recognition, we are currently exploring with Australia an agreement for the mutual recognition of our regulatory regimes in certain activities of the securities market. We are ready to conclude similar arrangements with other like-minded regulators. BIS Review 45/2001  3  Consolidation of financial centres The third dimension is consolidation of financial activities in fewer locations. Before the collapse of the Bretton Woods system, financial institutions had predominantly domestic clienteles and tended to locate in their respective financial capitals, for easy access to clients. So the largest centres tended to be financial capitals of countries with the largest economic bases. But as the structure of the financial industry evolved post-Bretton Woods, there has been a decoupling between the size of a financial centre and the size of its economic base. Institutions now need to service customers from many countries. It is not feasible for international players to maintain a major presence in every jurisdiction where they operate. So the financial centres that are able to enhance the competitiveness of their constituent firms are the ones that thrive. Proximity to clients has become less critical.