The decade of financial reforms and financial sector development that followed the Asia financial crisis have resulted in more developed and resilient financial systems that is now better able to intermediate the more volatile financial flows and to withstand shocks to the system. During the recent global financial crisis, most emerging economies in Asia did not experience any disruptions to the financial intermediation process and credit flows continued uninterrupted providing important support to economic activity. It also allowed the financial markets to facilitate the transmission of policies to support the economic recovery. This developmental role is also significant in contributing towards preserving financial stability. The development of the domestic financial markets and the development of a more diversified financial system has reduced the risk of over concentration on the banking system, a feature that was prevalent during the Asian financial crisis. The introduction of new institutional arrangements has also been aimed at keeping abreast with innovation, the advancement in technology and the intensification of globalisation. It has also allowed for the adoption of a more balanced approach towards regulation in which it is complemented by the newly developed mechanisms for surveillance including across borders, strengthened supervisory oversight and institutional arrangements for resolution. Central banks and financial markets A more recently much discussed mandate is the role of the central bank in ensuring the orderly functioning of financial markets.

As the challenges become more complex, standalone actions may not achieve the desired outcomes. Moreover, the perceived best solution for one country may have unintended consequences for collective stability. Asia has, thus, come together collectively to conduct regional surveillance with concrete steps to establish financial support networks, to develop regional financial markets and payment systems. Such collaboration also provides a collective voice and representation and the potential to be heard in the sphere of global policy formulation. Modernisation of the central bank As central banks advance forward into the future of great uncertainty, the challenge of the new environment demands new institutional capability for the central banks to remain effective in delivering our mandates. Central banks also need to undertake its own transformation and modernization. Such institutional capability enhancement may involve changes in the institutional arrangements, organizational and governance structures and practices, the empowering legislation and the talent required. Such organisational development would thus require continual reinvention to adjust to the new realities of the changing environment. In most emerging economies, the largest concentration of talent resides in the central bank. In this new environment, this talent needs to have new capabilities to deal with complex issues from different perspectives that are no longer based on functional boundaries. While this involves horizontal collaboration across the organization, it also requires management of relationships including with the government while retaining the independence of the organization.