Financial deepening without financial excesses

Speech by Mr Hervé Hannoun, Deputy General Manager of the Bank for International Settlements, at the 43rd SEACEN Governors' Conference, Jakarta, 21 March 2008.

Abstract

Deep and strong financial markets are important because of the need for market-based and diversified channels of intermediation between borrowers and investors. While Asian economies have made impressive strides in financial deepening, their patterns of capital flows suggest that much financial intermediation is still being carried out at great cost abroad. Meaningful financial deepening will bring some of that intermediation home.

The recent turmoil in the global financial markets showed what problems financial excesses can bring. To their credit, SEACEN central banks have made an effort to maintain the right balance between promoting financial deepening and avoiding excesses in bank credit provisions and financial market development. Going forward, these central banks may also wish to consider adopting proactive measures against financial excesses by improving their microprudential regulation and introducing a macrofinancial stability framework.