Over the last few months, leverage has generally fallen, especially among those institutions that were most highly leveraged. 20 The fall reflects, in part, recapitalisation efforts, lower risktaking as a result of more prudent lending standards, and the shedding of assets and/or limitation of the growth in balance sheets. It also reflects pressure from the market and supervisory authorities to control leverage, as well as expectations regarding the possible introduction of a leverage ratio, in addition to risk-based capital requirements. 21, 22 Likewise, capital position ratios of large and complex banking groups in the euro area are improving. The earnings of these banks have recovered, while the growth of total assets and of risk-weighted assets has slowed down and capital has increased, both from public and private sources. These developments were necessary in view of the expected increase in non-performing loans as a delayed result of the economic crisis. 18  W. Bagehot, “Lombard Street: a description of the money market”, Scribner, Armstrong & Co., 1873. 19  With regard to the importance of an accommodative monetary stance at the margin, see, for instance, T. Adrian and H.S. Shin, “Financial intermediaries and monetary economics”, Handbook of Monetary Economics, forthcoming. 20  It should be noted that this effect only arises when the impact of losses on the capital base is greater than the reduction in the value of marked-to-market assets on the balance sheet.
Regulators also need to strengthen their cooperation to minimize possible cross-border spillover risks. On this note, I am glad to report that tomorrow CBRC and the Bank of Thailand will enter into a MoU on Banking Supervision. The third area of cooperation is to enhance financial inclusivity in our region. The financial sector must be aware of its social responsibility and take active roles in promoting financial access and inclusive growth. People at large need to have access to basic financial products at minimal prices, together with adequate financial literacy and financial planning skills. In summary, financial connectivity can be and needs to be enhanced in Asia. AFCA, with its diverse membership, is in a unique position to deepen financial cooperation and promote connectivity among its members. AFCA can play significant roles to strengthen the Asian financial sector and Asian economies by improving productivity, building stronger immunity, and promoting more financial inclusivity. In closing, I would like to congratulate once again the Chinese leadership, CBRC, and AFCA. I wish AFCA very fruitful years ahead. Thank you. 3