glenn stevens : financing the asian century remarks by mr glenn stevens, governor of the reserve bank of australia, to the asia - pacific financial market development symposium, sydney, 10 april 2013. * * * welcome to sydney. we are here this evening at the royal sydney yacht squadron, founded in 1862 for the enjoyment of sailing by its members. i am not a sailor ; aviation is more my hobby. but one can see that in sailing, key elements to a successful voyage would be similar to those in aviation. these would include : • an adequate amount of training and proficiency on the part of the skipper and crew • a realistic assessment of the capabilities and limitations of your craft • a clear destination and a route to get there, though with some flexibility in amending the route should circumstances change • a realistic assessment of the risks involved, including a respect for the weather1 • compliance with the rules • a plan b in case something goes wrong • in the worst case scenario, the availability of rescue to protect human life – though not the financial interests of the boat ’ s owner. all these are important. without wanting to push the analogy too far, many elements of policy making and financial development could be said to share many of these attributes. we need to understand how systems work, and their limitations. we want the participants, regulators and supervisors to have appropriate training and skill. we need to keep in mind our desired destination and retain some flexibility of choice in the route depending on circumstances. we need to think about how to respond in the event problems occur and to have a clear idea of whose interests need to be protected. we need a realistic assessment of how much we can ’ t know. and so on. meetings such as this one are good opportunities to learn about how the system is developing, to improve our understanding of how it works, and to have a conversation about desired destinations and routes to get there. and i think after the events of the past five years, we are all conscious of the limits of our knowledge. it would be apparent from your deliberations today that asia ’ s financial markets are continuing to develop rapidly. to take the market for fixed interest securities, the total size of the bond market in asia, excluding the very large japanese market ( which has been highly developed for a long time ), now amounts to about us $ 7 trillion, having increased substantially over the past five years. this is an amount equivalent to around 60 per cent of the area ’ s gdp. while in

states and europe. we would have to say as well that supervision was found wanting. once the crisis hit, the complexity of operations across borders then greatly complicated efforts by policymakers to address the resulting problems. the financial system in this time zone, in contrast, has come through this episode in much better shape. thanks partly to the painful lessons of the asian crisis and other episodes, banks had generally stronger capital positions and higher lending standards, while supervisors had also done their job in the years prior to 2007. moreover, several banking systems in the region are among the earliest adopters of the new, tougher, basel standards. it goes without saying that we want this prudence to continue. but unlike the case in some other countries, the financial sector in the region is well placed to play its role in supporting the sustainable growth of economic activity and trade. it is noteworthy that as european banks sought to pull back from some activities in the region, including trade finance, banks from within the region have stepped up. so this is a point for confidence. this is not to say that there are no sources of vulnerability. in particular, concern has been expressed about the risks that may be growing in the “ shadow banking ” system in china. in recent years, an increasing share of financing in china has been provided by non - bank entities and through banks ’ off - balance sheet activities. in no small part, this growth in shadow banking reflects restrictions on both the quantity of bank credit, and controls on loan and deposit rates. such restrictions lead to demand for credit exceeding the formal banking sector ’ s ability to supply it, and also provide an incentive for savers to seek alternatives to low - yielding bank deposits. the chinese authorities have introduced a number of measures to mitigate the risks, and many types of shadow banking activities in china are now subject to some regulatory oversight. hopefully, this will lead to a stable outcome. but china ’ s experience is one that others have had at various times : as long as there are incentives to by - pass the formal banking sector, the shadow banking system may keep on growing together with the risks. more generally the risks associated with prolonged low interest rates globally are very much on the minds of policymakers right around the region, and will be for a while, i would think. turning to the second and third on the list of desirable attributes for finance, namely efficiency and integration, it may be that these will naturally go together. an efficient financial system intermediates savings at