asia must strengthen its infrastructure for allocating capital. banks are still the principal channel for allocating capital in asia, and post - asian financial crisis, many asian authorities have taken steps to strengthen their banks. banking systems were cleaned up of their non - performing loans, recapitalised, and strengthened. capital adequacy ratios were raised and a more risk - differentiated view was taken of bank assets. risk management systems were made more robust. it was in large part because of these changes, that asia was better able to withstand the global financial crisis in 2008 and 2009. 18. but much work remains to be done in one important area. developing asia needs to continue to develop its capital markets. the asian financial crisis was essentially due to a double - mismatch in bank financing – currency mismatches and maturity mismatches. this is where strong capital markets can play a useful role in allocating capital in a more balanced and efficient manner. they also help to deepen financial intermediation, so as to facilitate the deployment of the region ’ s high savings for investment within the region. 19. this was why, nearly ten years ago, the asean + 3 countries ( namely the ten nations of asean together with china, japan and south korea ) introduced the “ asian bond markets initiative ( abmi ) ”. the abmi has had a good start – the asian corporate bond market has grown by more than 2. 5 times during 2002 to 2010. but it is still too small relative to the size of asia ’ s investment needs. it needs to be more liquid and diverse. access to capital market funding is still mostly restricted to large conglomerates and government - linked companies. 20. emerging asia is also under - represented in the equity universe. the region ’ s 45 countries in the msci ac world index account for less than 10 per cent of the index although their share of world gdp is 19 per cent. 21. we need to make emerging asia ’ s capital markets deep enough to effectively intermediate its considerable savings pool and broad enough to provide a range of suitable instruments for risk mitigation. 22. the crying investment need in asia is for infrastructure. a report released by the asian development bank institute estimates that the total investment needs for national infrastructure development in asia will average close to us $ 750 billion per year from 2010 to 2020. but private participation in infrastructure investments in asia amounted to just us $ 15 billion in 2009, less than half the us $ 39 billion that

markets or currencies, rather than find their way to the most productive investments in asia ’ s economies. 10. asia ’ s financial markets have grown significantly over the past decade. but the capital markets, and especially for bonds and securitised debts, remain small in relation to asia ’ s gdp. further, the region ’ s financial markets are still relatively small and fragmented. 11. there is by the same virtue, great potential to develop asian financial markets and enable them to play a stronger role in promoting balanced and sustainable growth. 12. we will have to push ahead with reforms at two levels to develop these financial markets. gradual and progressive financial liberalisation can bring about more liquid and broader domestic financial markets. it will also help spur domestic demand by households, and provide smaller enterprises with better access to capital in several asian economies. secondly, at the regional level, we have to inject greater momentum into improving crossborder market access and harmonising rules and standards. key themes in the development of asia ’ s financial markets 13. let me now touch on three themes that will influence the development of asia ’ s financial markets in the decade ahead : i. firstly, the changes in the otc derivatives markets as a result of global reforms ; ii. secondly, the harnessing of technology to transform asia ’ s financial infrastructure ; and iii. thirdly, the increasing international role of the rmb. for example, south korea, indonesia, thailand and the philippines. namely the us, japan, france, peripheral europe. bis central bankers ’ speeches i. structural shifts in the otc derivatives markets as a result of global reforms 14. first, the structural shift in the global otc derivatives markets. most of you will be familiar with the changes that are coming into place, in steps, as a result of global reforms – more standardised products, and more robust market infrastructure : central counterparties for clearing, trade repositories for reporting, swap execution facilities for trading where appropriate. the global reform process is now shifting from rulemaking to implementation. 15. we are already seeing the shift in asia ’ s otc derivative markets. the new market infrastructures are expected to provide greater transparency and allow risks to be managed more effectively among market participants. market practices will be redefined, with the need to report and clear selected otc derivative trades within more than one jurisdictions. 16. however, we are also seeing a proliferation of central counterparties ( ccps ) and trade