However, I believe that Asia should press on with its efforts to develop their capital markets in order to complement the banking system and improve the robustness and efficiency of its financial system. Second, as we pursue financial sector development, we will also see more sophisticated products coming to the fore. Market players and regulators alike must refine their understanding of the attendant risks; in particular, how shocks may be transmitted through such products. We must then develop tools to manage such risks. Indeed, much of the recent financial dislocation stemmed from opacity in the distribution and pricing of risks for derivative products. The key lessons include the need to monitor off-balance sheet exposures and to institute better management and supervision of liquidity risks. Addressing these issues will not be easy as we must avoid imposing excessive regulatory burden on market players or stifling financial innovation. Third, as growing inter-dependence is a reality, the central bank, the financial regulator and the guardian of the public purse must work in close coordination. They must also work with key counterparts in other jurisdictions. One key issue which requires particular attention is the establishment of crisis management and resolution frameworks to minimise systemic fallout should financial institutions run into trouble. 2  BIS Review 124/2007  Other challenges to sustained growth Looking ahead, Asia faces other challenges to sustained growth. First, global financial imbalances pose political and economic risks.
However, given that vulnerabilities on these markets are still high, the resilience of the banking system remains crucial. In January 2022, the Federal Council approved the SNB’s proposal to reactivate the countercyclical capital buffer. This buffer will come into effect at the end of September and will contribute to maintaining banking system resilience. Page 1/1