The objective to be achieved is the same, that is, to build the regional capacity to be better positioned to prevent, contain and resolve any potential crisis at minimum costs to our financial systems and to our economies. In conclusion, the cumulative effect of the changes since the Asian crisis has transformed ASEAN – opening up new opportunities and making the region resilient and a dynamic centre of growth. The ASEAN “tigers” are back, and poised to leap on to the next wave of economic advancement and prosperity. BIS Review 46/2007  3
So it is no surprise that a risk factor which adversely affects one institution would simultaneously hurt another. With fair value accounting, everyone has to mark their positions to the same volatile market. A number of institutional investors also abide not to hold any assets below a certain credit rating, hence a hard cut-off. So when borderline assets get downgrade, all these institutional players have to liquidate their positions, all at the same time. Meanwhile, as VaR methodologies and risk management tools employed by different banks become increasingly converge, the results of the analysis also tend to converge. The main point is that when a risk factor moves adversely, these similarly exposed institutions incur the same direction of losses, whence their largely identical response actions further distress the market, thereby completing the feedback circuit. The second propagation channel in the form of network linkages between institutions presupposes that there exists prior bilateral relationships between financial institutions. A good example is in the clearing, payment, and settlement activities where the bilateral link is simply the amount that must be cleared, paid, or settled. But with real-time gross settlement,  4  BIS Review 130/2009  the vulnerability in this area featured very little in this crisis. Instead, in this crisis, the direct interbank liquidity/funding lines proved to be the most critical network of bilateral relationships. When one bank becomes illiquid, this triggers cascading illiquidity to all other banks that are direct counterparties, or counterparties to the counterparties.