Development of the Asia Pacific Banking System

Abstract

Banks have continuously dominated financial systems across the Asia Pacific region and played an important role in regional economic development. After experiencing rapid growth during the 1990s, Asia Pacific financial systems, especially banking systems, were hit hard by the 1997 Asian financial crisis. Regulators implemented a series of reforms to improve bank efficiency, competition, regulation, supervision, and profitability to enhance financial stability. These efforts have made Asia Pacific banking systems more resilient. These banks have weathered the global financial crisis much better than they did during the Asian financial crisis and better than banks in the U.S. and Europe. Basel III, which responded to the problems of sophisticated Western financial systems, have been widely implemented in Asia Pacific financial systems that are bank-dominated systems with relatively small capital markets and limited securitization. Tighter capital and liquidity requirements under Basel III may constrain bank lending and economic development. Therefore, the effectiveness of the Basel III changes is unclear.