Asia has demonstrated its resilience to the many shocks from the international financial markets and the global economy during this recent global financial crisis. As highly open  2  BIS central bankers’ speeches  economies, most economies in Asia have been highly affected by these developments. Stronger domestic demand, greater intra-regional trade and investment, reinforced by resilient financial systems and strong macroeconomic fundamentals, have supported the economic performance of our region. There have been tremendous payoffs for the region from the decade long of financial reforms, institutional building and development of financial infrastructure. Despite the highly challenging environment of slower trade and volatile financial markets, financial intermediation in Asia has continued uninterrupted and financial markets, while more volatile, have remained orderly. It is thus on these strong foundations that the regional financial integration in Asia is not being set back. On the contrary, despite these global developments, the integration process has continued and regional financial cooperation and collaboration has strengthened, reinforced by the increased regional participation and presence of the private sector. Global regulatory reforms Let me now turn to the global regulatory reforms and its implications for Asia. The global regulatory response to the financial crisis is now moving into the implementation phase. At its core are the reforms to build a stronger global regulatory framework to significantly raise the level of resilience of the banking system. While that work has now been largely finalised, the complex task of implementing the new global capital and liquidity standards is just beginning.

This is being reinforced by arrangements for surveillance for assessments of risks to the region and regional frameworks for crisis management and resolution, including arrangements for mutual assistance. Equally important in this process is the cooperation and collaboration among regulatory authorities for sustaining regional financial stability. Much of this work has focused on putting in place strong and effective institutional arrangements to preserve regional financial stability. In the decade following the Asian Financial Crisis, most of Asia has accelerated the pace of financial sector development and reforms. Several of the Asian economies have made significant strides in improving the soundness and efficiency of financial institutions and in developing domestic financial markets. At the regional level, key initiatives have included the development of the regional bond markets through the creation of various Asian Bond Funds and the ASEAN+3 Bond Market Initiatives, the regional arrangements for crisis management that includes liquidity support, and the collaborative efforts advanced under EMEAP to facilitate liquidity management for financial institutions operating in the region through CrossBorder Collateral Arrangements. Currently, while intra-regional cross-border portfolio investments within Asia is relatively small, it has already increased to 28 percent of total assets holdings in 2011 compared with 21 percent in 2001. Another important development that has contributed to greater regional financial integration is the increasing role of Islamic finance in the international financial system. In its early stages of development, Islamic finance was highly domestic-centric in its orientation.