Indeed, as I have mentioned, foreign capital flows to emerging market economies tend to be procyclical, heightening the need for countercyclical policy measures through which these countries can cope with such procyclical flows. Macroprudential regulation can be a significant help in this respect, by changing financial institutions’ incentive structures in ways that internalize the negative externalities caused by their own activities.
It is, of course, important to prevent the possibility of regulatory arbitrage in response to our strengthening of macroprudential regulations, and for this international cooperation is very much required. All of these issues should of course be discussed in harmony with our efforts to build a better international financial architecture.