1. Financial evolution, regulatory reform and co-operation in Asia: Issues emerging from the discussion Seoul National University 17-18 May 2013 Jayati Ghosh

2. Context Convergence of financial systems across much of Asia to Anglo-American model. This associated with more fragile banking and financial systems (although with greater micro- prudential control). Finance-led growth in many countries, focussed on housing and real estate, as well as consumer credit. Emerging/existing bubbles in some countries fed by capital inflows because of QE in the North and reduction of other avenues for financial investment.

3. Levels of policy and regulation National vs international Significance of financial policies in the North (US, Europe and now Japan) Quantitative easing Inadequacy of current financial re-regulation Lack of control over commodity futures markets How important and how useful is region as the terrain for policy discussion?

4. Nature of the Asian region Still relatively dynamic Differences in size Differences in levels of development (real and financial) Differences in degrees of financial deregulation Economies with current account surpluses/deficits Economies trying to become financial centres Complex web of bilateral/plurilateral trade and economic partnership agreements

5. Possible forms of co-operation Managing exchange rate volatility Underperformance of Chiang Mai Initiative Little evidence of bilateral/regional support in periods of crisis Coping with carry trade and inflows leading to currency appreciation Enabling more and longer term trade finance, including through barter trade Regional development bank Significance of Chinese and other investment Pooling some excess reserves Can sovereign wealth funds play a role?

6. Co-operation for financial regulation Limiting illegal activities Sharing information on inflows/outflows Double taxation treaties and their misuse Money laundering (role of Singapore etc.) Avoiding regulatory arbitrage by doing it together Co-ordinating regulation that affects cross-border flows (capital account restrictions) Taxation policies Domestic financial regulation

7. Domestic concerns Peculiar and unsustainable financial inclusion in almost all Asian countries Bubbles about to burst? Continued exclusion, especially of small producers, from formal credit market Growing links between formal and informal channels – securitisation and originate and distribute models, shadow banking, kerb lending, other intermediaries Decline of development banking

8. Going in the wrong direction? Move to universal banking, with associated difficulties of regulation Greater significance of private banks More (not less) capital account freedom Aggregate monetary policy (interest rate) to control inflation rather than addressing sectoral causes (food and fuel cost push, asset bubbles) Reduction of directed credit, which means continued exclusion of small producers neglect of agriculture and other sectors short term orientation of finance

9. Conclusion Despite many differences, common financial problems, common (wrong) policy responses So increased fragility and exposure to vulnerability of the Asian region as a whole Atmosphere of (implicit) competition still dominates – but there are lots of advantages of regional co-ordination of regulatory activities Now we only need to get the political support for this! …….