. it is expected to grow to 20 % in 2020. what this suggests is that asia is no longer just a recipient of investments from us and europe. increasingly, asia will become a major source of fdi for the rest of the world. in terms of private wealth, a 2006 merrill - lynch study noted that asia - pacific contains 27 % of the global population of high net worth individuals ( hnwi ) and 23 % of global hnwi wealth. merrill - lynch expects private wealth in asia - pacific to exceed us $ 10trillion by 2010, growing at an annual growth rate of 6. 7 %, outpacing the global rate. these are vast resources which can be harnessed to finance future growth. strategic stability within the region politically, i expect the strategic environment in asia to be stable. on a bilateral level, the key relationships which underpin the region ’ s stability – us - china, us - india, china - japan and china - india – are sound. the major players will compete and cooperate over a range of issues. there will be occasional tensions over trade, history and territorial disputes but these will be managed as the major players want stability and growth, not conflict and instability. they have also taken steps to strengthen their relations. although slow, progress is being made to resolve the crisis over north korea ’ s nuclear programme. tensions may arise in cross - strait relations should taiwanese politicians play the independence card as taiwan heads for elections in 2008. but so long as the us maintains its clear stand that it will not support taiwan ’ s independence, the situation will not get out of hand. i do not expect major military conflicts to break out in asia. all countries in asia understand that any such conflict would set themselves and the region back. this will detract from everyone ’ s focus on economic growth and building cross - national and cross - regional ties. there is strong optimism that asia can make it in this century and strong determination to succeed. i therefore expect a stable strategic environment to provide the backdrop for the region to grow. deepening economic integration and interdependency within asia, economic integration is deepening, and we are becoming more and more interdependent. intra - asian trade as a share of the region ’ s total trade has grown from 34 % in 1980 to more than 50 % today. asia is being woven together by trade and investment flows, mncs spreading their production chains and a growing web of bilateral and multilateral

banking system. since capital is the last line of defence against bank insolvency, regulatory capital requirements are one of the fundamental elements of banking supervision. this is why the basel committee has devoted so much effort to developing the so - called basel ii capital framework, which was released in june 2004. the new capital framework is built on three mutually reinforcing pillars. the first pillar aligns minimum capital requirements more closely with banks ’ actual underlying risks. the menu - based approach means that qualifying banks may also rely partly on their own measures of those risks, which will help to create economic incentives to improve those measures. in concept the first pillar is similar to the existing “ basel i ” capital framework in that it provides a measure of capital relative to risk. what is new are the second and third pillars. the second pillar – supervisory review – allows supervisors to evaluate a bank ’ s assessment of its own risks and determine whether that assessment seems reasonable. it is not enough for a bank or its supervisors to rely on the calculation of minimum capital under the first pillar. supervisors should provide an extra set of eyes to verify that the bank understands its risk profile and is sufficiently capitalised against its risks. the third pillar – market discipline – ensures that the market provides yet another set of eyes. the third pillar is intended to strengthen incentives for prudent risk management. greater transparency in banks ’ financial reporting should allow marketplace participants to better reward well - managed banks and penalise poorly - managed ones. basel ii, in my view, is fundamentally about better risk management and corporate governance on the part of banks, as well as improved banking supervision and greater transparency. thereby, it is also about increasing the stability of the global financial system, to the benefit not only of banks, but also consumers and businesses. this is especially critical in markets where banks are the primary source of funding and therefore key drivers of sustainable development. how will basel ii contribute to financial stability? allow me then to take a few minutes to elaborate on several areas where i believe basel ii will foster financial stability. first, i believe that basel ii is a major step forward in strengthening the incentives for the ongoing improvement of banks ’ risk measurement and management systems. the new capital framework is both incentive - based and risk - based. it therefore offers us the opportunity to ensure that supervision and regulation takes a forward - looking view on risk, that it remains up - to - date with sound practices in the industry and that our supervisory framework motivates responsible