reform should be the first priority, and mark the starting point of any reform sequence in debt - ridden advanced economies. but emes also need to prepare for approaching fiscal challenges associated with population aging and growing demand for social welfare. as to financial regulatory reforms, they have been extensively discussed and formulated into the basel iii policy framework. and for this reason, i will not discuss them further here. second, more and better financial integration by emes we all know that trade integration has enabled many emes to grow rapidly and accelerate their catch - up processes. i believe that financial integration can do the same for emes, by improving resource allocation within and across countries and offering greater liquidity and risk hedging. the diverse development stages and demographics of emes offer very fertile ground for efficiency gains from financial integration. these gains can of course be reaped only if the attendant systemic risk is adequately controlled. but the strengthened basel iii framework will render financial integration by emes more opportune going forward. third, structural reforms to promote domestic demand promotion of domestic demand helps to diversify the sources of growth, and thereby yields stability gains for emes. empirical evidence indicates that economic growth in emes is not related to the size of the trade surplus, or even to the volume of exports, but rather to the output of industrial products. and as long as domestic demand is sufficient to accommodate it, emes can attain sustainable growth by expanding their industrial economic activities. while the list of possible reforms to achieve this is long, i would like to highlight here the effects of domestic financial development and social safety nets. a recent study finds that their underdeveloped financial systems could be a cause of the high savings rates in asian emes. with limited access to financial markets or opportunities for diversification, firms tend to retain their earnings for future investment and households to increase their precautionary saving. these tendencies dampen private consumption. incentives for precautionary saving will be even stronger, i should add, if the social safety net remains relatively weak. finally, strengthening the global financial safety nets ( gfsns ) the large literature on economic development suggests that the quality and volume of financial intermediation matters a great deal for long - run growth. existing studies also show that leveraged risk - taking enhances growth. it does of course also bring about undesirable side effects, such as recurring financial crisis, but a review of the evidence indicates that the growth - enhancing effects dominate

are to maintain financial stability, we have to consolidate our efforts to build up a framework of cooperation and an appropriate division of roles between the authorities involved. these include the central bank, the finance ministry and the financial supervisory agencies. secondly, information asymmetry is one of the major factors working to increase financial instability so we must strengthen our efforts to heighten the transparency of the accounting and management information of financial institutions. lastly, financial market players tend strongly toward herd behaviour, which fosters the accumulation of risk factors and the spread of crises. in order to calm this galloping herd, the policy authorities should provide appropriate information on market conditions, so that players can decide upon the level of risk they wish to accept from a long - term and system - wide perspective. concluding remarks so far, i've briefly dealt with our experience of financial crises and the importance of macro - and micro - prudential surveillance, together with the tasks ahead. i am sure that this conference will provide a great opportunity to build up an effective framework for financial stability. thank you for listening so attentively.