This was evident in the post-Lehman period which saw massive outflows from the Asian region following the deleveraging by the financial sector in several of the advanced economies. The increased connectivity of the world means that systemic risk events will become more widespread and significant compared to previously. These fundamental changes in the national and international financial environment have prompted the search for solutions that would reduce the prospect of such financial disasters from happening in the future. This search has involved the reassessment of the role that should be assigned to Central Banks. It is important to recognise however, that there is no unique blueprint for the design of the institutional arrangements for a Central Bank and that it needs to be relevant and suited to its own circumstances. Indeed, the roles of Central Banks have varied considerably and have ranged from having a narrow mandate of maintaining price stability to more broader mandates that have included maintaining financial stability, undertaking the supervisory and regulatory function of the financial sector, maintaining orderly financial markets, addressing financial imbalances, leading the financial resolution initiatives in the management of a crisis and finally, driving the development of the financial system. My remarks today will focus on the mandate and role of Central Banks from the perspective of emerging economies, and more specifically, in the context of Asia. National roles This recent two decades, have witnessed radical reforms of Central Banks in several parts of the world, generating widespread debate on two specific trends that have emerged.
Prudential measures applied since the 1990s have been successful in containing the build up of such financial imbalances, thus reducing the risk to financial stability. The world going forward is likely to continue to be affected by financial crisis. History has shown that there have been more than a hundred distinct banking crises in these two recent decades. The prospect of surviving such a crisis is not only about building resilience but also having the capacity to manage it. The institutional arrangements for financial stability continue to be a key area of debate. The main issues have tended to centre on the role of the central bank in financial stability, and whether there should be a single or multiple supervisory authorities. Given that the central bank is the lender-of-last-resort, the central bank is invariably in the frontline of the actions to restore stability. While there is no general agreement on the optimal structure for the supervision function, it is recognised that financial systems have become increasingly complex and interconnected. Whether a country adopts an integrated model or a model that is organized along sectoral lines, effective coordination is critical to effectively safeguard financial stability. As the entity responsible for monetary policy, the Central Bank undertakes surveillance on macroeconomic conditions and in undertaking open money market operations and the management of international reserves, the Central Bank has direct contact with the financial markets.