Regional Financial Integration in East Asia against the Backdrop of Recent European Experiences

Abstract

This article discusses recent trends in regional financial integration in East Asia and current efforts of the Association of Southeast Asian Nations (ASEAN) member countries to foster regional financial integration against the backdrop of three decades of experience with financial integration in Europe. It reviews the two major crisis episodes of the recent European financial history to illustrate the risks associated with comprehensive capital account liberalisation and financial integration without commensurate supervisory structures. The article highlights the importance of targeted macroprudential policies and the development of an adequate region-wide regulatory and supervisory framework to reduce the risks associated with regional-and hence internationalfinancial integration.

Heterogeneity of financial institutions in the process of economic and monetary integration in East Asia

“…The work of Raddatz (2010) and Van der Veer (2015) offers some interesting points on these issues. The Eurozone crisis has shown the importance of common framework rules, a problem that the ASEAN countries also needs to solve in the near future (Volz, 2016). The findings of Camarero et al (2013) about the euro effects on trade considering stochastic trends should also be taken into account.…”

“…This is an important difference considering the past situation where the importance of European and American financial investments was preponderant. For Volz (2016), the development of a strong regional banking system with important services especially in trade finance can have an important positive influence on the development of the regional economy. Furthermore, East Asian nations, especially ASEAN countries, are moving towards a more integrated regional financial market.…”

“…This could have positive effects on regional development, but it also poses significant issues. Volz (2016) indicates that even in a more integrated environment and with quite a harmonised bank regulatory system, like the EU, problems related to a highly integrated financial market could provoke financial contagion as the Eurozone crisis demonstrates. The eruption of the crisis pushed the integration of the banking system forward and brought on the creation of the banking union that included common bank supervision and region‐wide macroprudential regulations.…”