resources, rapid urbanization, and a competitive technological base. in addition, various policy initiatives taken after the asian financial crisis in the late 1990s have played an important part. in response to the asian crisis, countries in this region carried out ambitious reforms on many fronts, including fiscal consolidation, monetary policy management aimed at price stability, improvement of financial supervision and regulation, and development of regional financial markets. in hindsight, the asian crisis could be considered a blessing in disguise in the sense that it prompted tough reforms which in normal times might have been difficult. bis central bankers ’ speeches yet, asian economies are not immune to the sovereign debt problem in europe. three potential channels of contagion can be noted : first, trade links ; second, financial market disturbances ; and third, deleveraging by european financial institutions. naturally, these three channels are not mutually exclusive. for instance, the longer the disturbance continues in european financial markets, the harder the hit to the balance sheets of european financial institutions, which causes european deleveraging in asia. if this spreads to disrupt trade finance, asian economies heavily reliant on exports would surely suffer. so far, the spillovers from europe to asia have been mild. deleveraging by european financial institutions looks moderate for the most part, with asian financial institutions filling the shoes of european banks in some cases. given that european financial institutions have enjoyed a visible presence in asian financial businesses – most notably in corporate syndicated loans, trade finance, and lease finance involving ships and aircraft – it is sensible, however, to pay careful attention to deleveraging by european financial institutions. iii. business model of asian financial institutions with regard to the brisk growth of asian countries, there is another factor we should keep in mind. this is the limited exposure of asian financial institutions, in the run - up to the subprime crisis, to complex securitized products and risk transfer techniques. it seems that the subprime crisis has generated skepticism or soul - searching vis - a - vis cutting - edge financial innovations. in order to enhance social welfare, such innovations should be in line with the core functions of finance, that is, financial intermediation and payment and settlement services. without this connection, financial innovations cannot help boost the productivity of the economy at large. 1 we can see that some resecuritized products deviated from this basic tenet before the subprime crisis. even in simple secured transactions such as repos, the same securities posted as collateral

stock prices since the beginning of the year and the improvement in corporate profits due to the correction of the yen ’ s appreciation, business and household sentiment has recently improved and fundraising by the private sector has increased moderately. looking ahead, with the effects of qqe on economic activity becoming increasingly pronounced, a virtuous cycle – in which positive developments in economic activity and changes in expectations bring about further improvement in economic activity and further increases in inflation expectations – would enable the bank to achieve the 2 percent price stability target. b. loan support program in order to maintain this virtuous cycle, it is important that firms and households actually make use of the accommodative financial conditions for funding and increase investment and spending, which in turn will lead to an improvement in the aggregate supply and demand balance. however, although some positive developments can now be observed in the demand for credit, many firms still do not borrow to finance their business fixed investment and instead invest only as much as their cash flow will allow. to promote full use of the accommodative financial conditions by firms and households, the bank – in addition to implementing aggressive monetary easing measures – has established the loan support program. the program consists of two measures : the fund - provisioning measure to stimulate bank lending ( hereafter the stimulating bank lending facility ) and the fund - provisioning bis central bankers ’ speeches measure to support strengthening the foundations for economic growth ( hereafter the growth - supporting funding facility ). 1. the stimulating bank lending facility the stimulating bank lending facility was introduced with the aim of prompting financial institutions to take a more active lending stance and stimulating greater proactive credit demand of firms and households. with this facility, the bank provides long - term yendenominated funds at a low interest rate to financial institutions that have increased their lending, at their request, up to an amount equivalent to the net increase in their lending for a period of five quarters – the january - march 2013 quarter until the end of the january - march 2014 quarter – from the base period of the october - december 2012 quarter. there shall be no upper limit to the total amount of funds provided by the bank under this facility. the lending, based on which the net increase is calculated, can be either yen - denominated or foreign currency - denominated. japanese firms ’ international operations as well as financial institutions ’ activities to provide funds for such operations play an important role in capturing global demand, so that the bank ’ s