This is followed by reversals arising from the deleveraging efforts to reduce public and private indebtedness. These volatile capital flows in the international financial markets have increased the volatility in exchange rates and asset markets. The low international interest rate environment has also been a factor that has increased the prospect for the financialisation of commodity markets. Finally, there is the impact of the potential unintended consequences of the global financial regulatory reforms. The effort to implement the new global regulatory reforms is already underway in Asia, with many jurisdictions making significant progress. These reforms are aimed to significantly enhance financial institutional soundness and safeguard financial stability. Concerns have, however, been raised on the unintended consequences that may  BIS central bankers’ speeches  1  arise in the emerging economies, including its potential ramifications on the real economy. This underscores the importance to implement these reforms cautiously, including the need to conduct impact and behavioural studies, and to consider how the national implementation of these global standards should reflect the respective domestic experiences and circumstances. Factors underlying the transformation of Asia Asia’s rapid growth trajectory over several decades has been underpinned by a number of fundamental characteristics. These same characteristics are still present and will continue to support the ongoing transformation that is currently taking place. More recently, distinct strategies have been implemented to strengthen further the macroeconomic fundamentals and financial system soundness in the region.

Over time, investors have become nervous about the valuations of financial instruments. Banks took large write-downs on mortgage-related assets and other risky securities. Major financial institutions reported huge losses. Some of them even came to on the brink of default and some of the hedge funds liquidated their positions in order to match the increasing withdrawals of the investors. The sharp decline in risk appetite and concerns about the counter-party credit risk has led to a significant deterioration in shortterm credit and money markets leading to a major liquidity squeeze. Liquidity problems, coupled with solvency crisis, have tested the resilience of global financial markets, and we are still waiting for the light at the end of the tunnel. The big losses of financial institutions and deep plunge in consumer confidence due to sharp fall in house prices and declining personal income have increased the possibility of a recession in the US economy, which may have already started as we speak. Deterioration in risk perceptions has increased the risk premia of developing countries, including Turkey. So far, the rise in Turkey’s risk premium was in line with that of other developing countries, although more recently the current political uncertainty has started to put Turkish financial markets under considerable strain. I believe Turkey’s risk premium would be even higher in the absence of improvements in macroeconomic conditions and institutional reforms implemented in recent years. Dear Guests, One can label the last two decades as the era of globalization, deregulation, and privatization.