Similarly, in our case, the Bank of Thailand recently launched the Financial Sector Master Plan 2, in which we outline the key principles and guidelines for further strengthening of the financial sector over the next five years. Chief among the agenda are our commitments to bring down financial transaction costs through further deregulation and promotion of more competition in the banking industry. The second element of financial soundness is the integrity aspect. That is, financial institutions must be sufficiently immune to “runs”, which I define loosely as correlated and large-scale withdrawals of deposits, triggered by sudden loss of confidence in the solvency of banks concerned. On this, a key lesson for emerging markets from the global financial crisis is that the push for financial market development must be accompanied by constant efforts to review and bolster as necessary the supervisory framework and standards, so that financial soundness can be ensured without compromising the financial system’s integrity. The third and last element of financial soundness is the stability aspect. The financial sector, while playing an important role in supporting the real economy, can at the same time be the source of risk and instability to the real sector. As we know, the spillover effects from financial to real sector can take many forms. For example, the tendency for financial institutions to extend more credit during economic upswings, and scale back lending precisely during downturns, can contribute to the amplitude of the business cycles.
It is not clear that before the late 19 century a single dominant financial centre existed in Europe as the economies of scale were not sufficiently developed. 5  There is perhaps another puzzle in the way financial services have developed, one that is closer to home. The resurgence of London. According to the Global Financial Centres Index, London is the world’s leading 6  financial centre, just as it was in the days of Cunliffe Bros. But as we know, London did not enjoy uninterrupted status as a premier financial centre over the intervening period. As I have noted, international financial activity dried up materially after the First World War. But even accounting for the overall decline, London’s relative importance as a financial centre declined further as the global footprint and importance of the UK economy decreased along with sterling’s reserve currency role. It was only with return to financial globalisation, some 50 years ago, that this process was reversed – leading to the concentration we now see. The puzzle here is that historically, the clustering of financial activity has tended to follow trade and commerce. It was commerce that led to the rise of Venice and then Amsterdam as financial centres in the th  th  16 and 17 centuries.