Development of financial markets in Asia and the Pacific

Suresh Sundaresan offers several insights on the development of financial markets in Asia and the Pacific. First, financial market development in the region should take account of the large number of households who are effectively unbanked, given the potential for positive feedback effects between financial markets, economic growth and stability. Second, there is a need for fundamental banking reforms of capital structures and liquidity sources to mitigate bankruptcy risks, as well as the cost to taxpayers of insolvency and bailouts. Third, credit disintermediation in the shadow banking system, as seen during the crisis, represents a new development and requires corresponding changes in regulatory and policy frameworks to ensure a smooth transition to a more open and transparent financial system.