I will highlight three main dimensions along which greater integration is taking place, and discuss Singapore's policies and responses in each of them: the emergence and consolidation of international banks, regulatory cooperation and harmonisation, and the shakeout in the location of financial activities. Dimensions of greater integration and Singapore’s response Emergence and consolidation of international banks The first dimension is the emergence and ongoing consolidation of large international banks. International banks are seeking scale and scope through mergers and acquisitions. This is driven by deregulation, technology, and large economies of scale, as well as by the demand for one-stop, integrated financial services from banks' customers who are themselves globalising. The ability to offer clients access into several markets in different classes of financial instruments has become a valuable competitive edge. The wave of mergers has included Citibank and Travellers, Chase and J. P. Morgan, Deutsche Bank and Bankers' Trust, BNP and Bank Paribas. In Japan, the city trust and long term credit banks have merged into 4 major groups, in search of efficiency and rationalisation. In some smaller economies that have opened up their financial industry, most if not all of the domestic banks have been absorbed by foreign players. This has occurred in New Zealand, Mexico, and Argentina. Whether this is a happy development is yet to be seen. But worldwide, this process of consolidation has not been carried to the limit, nor is it likely to. Most mergers and acquisitions have taken place in the OECD countries, and often within the same country.

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.