This has also enabled the region to better manage the large and volatile capital flows that we are experiencing, thereby mitigating its destabilising effects on economic activity. These strong foundations have supported ASEAN economies through the challenging external developments that have taken place and have well positioned the region to realise its full potential as a dynamic growth centre. It is my great pleasure to be here to speak at this 19th ASEAN Banking Conference, hosted this year by the Association of Banks in Malaysia (ABM) here in Kuala Lumpur. This Conference takes place at an important juncture for our region, as concrete plans are being advanced to achieve an ASEAN Economic Community (AEC) by 2015. The AEC Blueprint, adopted by ASEAN leaders in 2007, envisages ASEAN to become a single market and production base that is characterised by the free movement of goods, services, investment and skilled labour, and freer the flow of capital. Despite the recent global financial crisis, the drive for this vision to be realised remains resolute. This is well supported by the prevailing strong foundations and the tremendous growth prospects for ASEAN in the medium to longer term. My remarks today will focus on the elements of the prospects for the ASEAN economies, and the state of ASEAN financial integration and its importance in enhancing the regional growth potential. My remarks will conclude with some thoughts on imperatives for the banking sector going forward into the future.
It is worth spending a moment on this point because it has an important parallel in the issues concerning money market funds. Banks are primarily funded by deposits, where the contract is understood to be to return the full value of the deposit plus whatever the interest rate is – usually “on demand” and without delay. Banks are held to high standards by regulators – including through liquidity and capital requirements, and regular stress tests – to ensure that they are well placed to be able to honour depositors’ demands. Central bank liquidity operations, resolution arrangements and deposit insurance further reinforce confidence in this promise to return the deposit. Thanks to the post financial crisis reforms, bank deposits are therefore cash or moneylike in most states of the world. At the other end of this spectrum are investment funds of many sorts. Most are not meant to be cash-like, in the sense that the promise is to return the fruits of the investment strategy, which may be more or less than the amount invested. Cash-like certainty of value is not part of the contract. If only it was that simple. There are at least two problems which are evident in how this system operates – or possibly two variants of the same problem. First, there are instruments which at least in some of their existing forms are neither one thing nor the other – neither properly cashlike nor properly investment-like. Second, there are instruments which are meant to be investment-like but which become regarded as cash-like.