Whilst risks to the outlook for global growth continue, with new events unfolding daily, Asia’s economic growth remains strong and transformation is expected to expand well into the future. This growth is set to drive increasing trade in goods and services, as well as the flow of capital between the region and the world. At the same time, Asia is also intensifying intra-regional financial and economic integration that would contribute towards accelerating the region’s growth prospects. Adding to these transformative trends is the march towards urbanisation which will continue to stimulate demand for infrastructure development. All these factors will have an important influence on the way in which the financial services industry responds to new growth opportunities in the region. To support Asia’s growth, financial markets in Asia must continue to grow in size and sophistication to intermediate capital towards productive investments. We can expect increasing demands being placed on Asian banks for services and expertise in trading, risk management, structured financing and loan syndication, infrastructural financing, and capital raising. Equally, recent efforts focusing on strengthening regional financial integration to facilitate the increasing intra-regional trade and investment, such as the ASEAN Banking Integration Framework, will offer tremendous opportunities for banks with the right credential to establish their presence as regional players. On the retail side, there exists vast potential for growth – owing much to the demographic transformation in the region. Asia is now home to a growing middle income population, the number of which is projected to reach 3 billion by 2030.
What will that entail? Controlling the excesses of finance cannot be achieved only with monetary policy interest rates. We need to expand the concept of leverage to other segments of the financial system, particularly synthetic leverage. I mean leverage which is not easily seen in the balance sheet, because it’s built up with derivatives. It’s not seen but it’s very relevant for banks and for the economy, as we saw during the crisis. 5/8  BIS central bankers' speeches  The obstacles to regulating markets, and not just banks, are not so much technical; the obstacles are more political or ideological. It requires more regulation and supervision by not only central banks, but also in some cases governments. It is politicians that often need to enforce macroprudential measures, and in some countries some governments do not want to use them. Another aspect that is different now is that we have in our economies too much finance. There is a strand of literature showing that after certain limits there are diminishing returns in the expansion of finance. And to tame these imbalances we will also need macroprudential measures. You have talked about the need to reform economics too. What do you have in mind? Big changes are happening, we are going in the right direction, but in my view we are not there yet.