Financial integration in the Asean region is moving rapidly with an "integrated crisis management" framework taking shape soon, said Bank Negara Malaysia Governor Tan Sri Dr Zeti Akhtar Aziz.
The framework, now in the advanced stages of being set up, will benefit financial institutions by providing stability in the event of any systemic failure.
Speaking to reporters after Wharton School's public panel dialogue on "Economic growth and opportunities in Southeast Asia" here yesterday, Zeti said Asean countries wanted to mobilise funds in the region to take advantage of the high savings rate.
"Funds should be channelled to the productive regions within Asean (and) we need the infrastructure."
Malaysia has a developed bond and capital market. In the case of bonds, sukuk is being issued by corporations from other parts of the world including Asia, and in many currencies. That represents part of the financial integration process, she added.
In the case of Malaysia, Zeti said the government had passed the Financial Services Act. This allows Bank Negara to enter into cross-border collateral arrangements with the Bank of Thailand and Monetary Authority of Singapore to enhance liquidity facilities to financial institutions in both countries.
The collaboration highlighted the regionally active financial institutions and increased financial inter-linkages in trade, investment and financial services.
"We recognise instruments issued by other sovereigns and central banks in Asia and financial institutions can use these instruments to obtain liquidity from central banks," she added.
Intra-regional trade between the 10-member Asean grouping currently make up about 50 per cent of their global trade.
During her stopover in Kuala Lumpur in November last year, the International Monetary Fund chief Christine Lagarde commented that although Asia had made strides in trade integration, it is still lagging in financial integration. This was reflected by the 90 per cent of Asean cross-border portfolio investment flows with advanced economies outside Asia.
Lagarde said greater regional financial integration can boost domestic demand, making it easier for small businesses in countries like Malaysia to gain access to credit and reduce inequality.
But she cautioned Asia to get its financial integration right and avoid the missteps and excesses of the West.
Zeti said regulators in the region have been working from the "good times" in 2006 to put in place surveillance on the risks and vulnerabilities in the finance industry when they emerge in the current global crisis.