global economic growth. to sustain such growth, the need for fund intermediation is also likely to increase. hence, should new financial regulations hinder the core financial function at a global level, the negative impact on the real economy could be all the more serious. second, some emerging asian economies, where asset price hikes threaten to create bubbles, have already adopted macro - prudential tools such as lowering the ltv and dti ratios of real estate - related loans. accordingly, these countries should examine the costs and benefits of their macro - prudential policy actions, and devise appropriate and timely exit policies to avoid long - term inefficiency. section 3. tail risks and false sense of security of macro - prudential measures the recent financial crisis ( the “ financial tsunami ” ), and the tragic great earthquake in northern japan ( with its gigantic real tsunami ), showed vividly that tail risks may materialize in our life time, and thus they are not really tail risks anymore. policy frameworks anticipating only “ ordinary ” shocks within usual economic cycles may not be very effective in mitigating the impact of such tail events when they actually materialize. the recent financial crisis in particular has forced policymakers to review their own policy frameworks and to examine how they could identify tail risks and deal with tail events. nonetheless, at this juncture we do not have fully reliable indicators for detecting tail risks nor panaceas against the maladies that accompany these tail events. we have to bear in mind that, no matter how intellectually - inspiring policy makers may find this new tool, macro - prudential policy can never be a substitute for appropriate macroeconomic policy or for effective financial supervision. japan ’ s experience of its bubble economy is a good example. japan learned just how difficult it is to control asset prices solely with macroprudential tools such as an administrative ceiling on bank loans to the real estate sector. 13 thus, in detecting tail risks and tackling tail events, we have to avoid any complacency or false sense of security in our macro - prudential policy framework. if we mistakenly believe that we could discover excessive risk accumulation through observing specific indicators, or that macro - prudential policies could be mightily effective in achieving financial stability, such complacency could itself become another source of instability. let me illustrate the importance of avoiding a false sense of security, by telling you the story of the world ’ s deepest tsunami break

everything is different : the foreign exchange and financial markets are much more stable and the currencies sometimes face upward rather than downward pressure ; foreign direct investment and other capital inflow continues to grow with the accumulation of foreign reserves ; the banking system has been strengthened through restructuring ; and the economies have grown at a steady and sustainable pace of 5 % on average since 2000. while there were indescribable difficulties to overcome the adverse effects of the crisis, the present performance clearly demonstrates the success of policy efforts and the underlying dynamism of the economies. i hope the speeches by the governors will enlighten us about the changes in economies and dynamism after the crisis. 3. regional cooperation turning to policy coordination, the crisis became the starting point for various initiatives in the region. exposed to the weakness in the international financial architecture, the ministries of finance and central banks became aware of the importance of regional cooperation and began to address the source of weakness. the chiang mai initiative, as a complement to the imf facilities, was agreed upon among asean + 3 to build a framework of emergency liquidity support through a network of bilateral foreign exchange swap arrangements. based on the analysis of the crisis, efforts have been made to reduce over - reliance on the banking sector for financial intermediation. the asian bond markets initiatives ( abmi ) is another regional cooperation by asean + 3 to foster local capital markets. sharing the same objective with the abmi, the executives'meetings of east asia and pacific central banks, or emeap, consisting of eleven central banks and monetary authorities in the region, started the asian bond fund project. by utilizing some foreign reserves of member central banks collectively, the emeap launched two investment funds ; one for investing in us dollar - denominated public bonds issued by the member countries, and the other for investing in local currency - denominated public bonds, to help not only to provide a convenient and low - cost instrument for market participants but also to identify and remove impediments to the respective local markets. 4. future challenges for the asian economies and financial markets in line with the good performance of regional economies and the progress in policy coordination among central banks and monetary authorities, economic integration in the region is gradually taking root. it is reported that intra - regional trade in east asia has recently reached around half of the total, which is comparable to that of nafta and slightly less than that of the eu. bilateral and regional free trade agreements are