These developments augur well for the region and would expand domestic demand and further fuel greater intra-regional trade among ASEAN member countries. The promise of higher living standards and employment is also drawing large numbers of people from the countryside to cities. Today, just over a third of ASEAN’s population are living in urban areas. This is expected to rise to 45% by 2030. Integrating national financial systems within the region is key to unlocking ASEAN’s enormous economic growth potential. As a critical component of the AEC, financial integration will significantly enhance the efficiency and effectiveness of intermediation and allocation of resources. This is crucial as the region pursues greater economic prosperity that is both inclusive and sustainable. By allowing the region’s financial resources to move more freely across borders, financial integration will open up new opportunities for businesses and trade, enhancing further financial linkages within the region. A more integrated regional financial system would also allow a larger share of the region’s surplus savings to be deployed within the region towards productive ends, such as in physical infrastructure projects. According to the Asian Development Bank, ASEAN will require approximately USD1 trillion 11 over the next 10 years in infrastructure investments across the region. This includes for the provision of sufficient housing, efficient public transportation and access to clean water and electricity. While the numbers seem staggering, the ability to recycle the huge savings within ASEAN will substantially enhance the region’s prospects to fund and sustain such investments.

2  BIS central bankers’ speeches  Banks with wide regional networks would possess the intimate knowledge of each economy and understands the unique requirements of SMEs. Such banks are well placed to serve and harness SMEs’ capability to participate more meaningfully in the region’s production networks. For ASEAN financial institutions, the prospect of regional financial integration will also serve to raise industry standards across the region. This includes enhancing the breadth and quality of financial products and services as a result of more efficient markets and the transfer of knowledge and technology. Financial institutions will also need to meet higher standards in how they manage risk and govern their operations. To some extent, this will be driven by regulatory efforts to elevate prudential and business conduct standards – a point which I will return to in a few moments. But aside from regulation, greater economies of scale and scope will also make it more feasible for financial institutions to invest in talent and more advanced technology and systems, to support business development and risk management. These benefits accrue not only to those individual financial institutions which are regionally oriented, but also more broadly to national financial systems. Greater market integration can contribute to the deepening of domestic financial markets which is important to encourage the more efficient allocation of capital and dispersion of risk more broadly, thereby strengthening the economy and financial system against external shocks.