However, while regulatory capital is important and may represent an overall constraint, research and discussions with banks actually suggest that, when determining the price of a loan, banks consider all of the economic risks associated with a particular borrower. It seems that factors such as “economic capital” and the level of competition are much more influential in individual loan pricing than regulatory capital. That finding should be no surprise to any banker or supervisor – banks that are managing their risks appropriately are already considering the risks that they face when they lend to higher-risk borrowers, and thus lower credit quality is already priced into a loan, even under the existing less risk-sensitive capital rules today. Furthermore, there are additional elements in Basel II that can contribute to alleviating concerns about the impact on capital flows to emerging markets. Let me mention the reduction in capital charges for retail lending, residential mortgages, small and medium enterprises (exposures below € 1 million) and well-provisioned past-due loans. Also, the recognition of credit risk mitigants, such as collateral and guarantees, is significantly better in the new framework of Basel II. If we take a medium or longer-term perspective, the different channels that I mentioned before will ensure better access to financial flows for the same risk.
But if it regains its reform momentum and begins to address its infrastructure deficit, growth should pick up to levels closer to those seen in the last decade. 15. In the ASEAN–4 economies of Indonesia, Malaysia, Thailand and the Philippines, domestic demand has displayed surprising resilience. This has held up economic growth, despite prolonged weakness in external demand and continuous terms-of-trade shocks. 16. But Emerging Asia is also not without its risks. While the advanced economies are deleveraging, Emerging Asia is re-leveraging. Credit growth has been climbing steadily, from an average 8% in 2009 to 15% in 2011, before easing to 12% in last year. The private  2  BIS central bankers’ speeches  credit-to-GDP ratio for the region, at 120%, is higher than during the Asian financial crisis. There is good reason for policymakers to be on their guard. Macro policies: the unfinished agenda 17. So, where is the global economy on its post-crisis journey? While economic prospects for 2013 look slightly brighter and tail risks have diminished, the global economy and financial markets remain fragile and vulnerable to shocks. 18. But this halfway point provides us, perhaps for the first time since the crisis, the opportunity to look ahead and pose the question of what is required to ensure a smooth return to normalcy. •  The advanced economies need to achieve fiscal consolidation alongside economic growth and chart an effective exit strategy from unconventional monetary policies.