Foreword

The global financial crisis of 2007-08 raised awareness of systemic risk in Emerging Asian countries, leading them to bolster their macroprudential policy frameworks. More recently, the challenges of climate change, and the rise of financial technology (Fintech) companies as providers of financial services, have posed additional concerns for macro-economic and financial stability. Strengthening Macroprudential Policies in Emerging Asia: Adapting to Green Goals and Fintech, produced by the OECD Development Centre’s Asia Desk, provides policy makers with analysis and policy recommendations for achieving the diverse array of objectives that meeting these challenges requires.

While macroprudential policy makers have various tools at their disposal to address systemic risks, several challenges remain, including the interaction between macroprudential policy and monetary policy, and the unintended consequences of macroprudential policy. The report also provides insights into how macroprudential policy could support the real economy in the wake of the economic fallout that has resulted from the COVID-19 pandemic.

The risks associated with climate change could severely destabilise the financial systems of countries in Emerging Asia, and the effects of this could then spill over into their entire economies. Central banks in the region must be proactive in supporting the transition to a more sustainable economy, by amending or expanding their macroprudential policy toolkits to tackle climate-related systemic risks, and to support low-carbon investments. Examples of policy options include the integration of climate-related risks in macroprudential stress tests, as well as amendments to various macroprudential instruments that either target credit growth directly, or regulate the allocation of credit to different sectors.

Fintech offers opportunities to foster financial stability, along with a deepening of financial markets and a broadening of their inclusiveness. However, new risks may also arise. For instance, Fintech may lead to riskier behaviour by banks. In turn, this could lead to more volatility, due to effects of this behaviour on their reputations. Regulators in Emerging Asia should consider policies to include Fintech firms in the regulatory perimeter where gaps exist. Finally, to avoid risks associated with the cross-border nature of Fintech’s financial activities, regulators should increase co-operation, either through regulatory convergence or via reciprocity arrangements.

The OECD Development Centre is committed to working alongside the governments of developing and emerging economies and regional actors to identify key areas of intervention in order to address challenges in strengthening macroprudential policies and other policy areas. The Centre enjoys the full membership of some Emerging Asian countries, namely Indonesia, Thailand and Viet Nam, as well as China and India. Committed to supporting Asian countries in their efforts to promote economic and social well-being through rigorous analysis, peer learning and the sharing of best practices, we hope that this report will highlight the importance of strengthening macroprudential policy amidst emerging policy challenges including the transition to a low-carbon economy and the rise of Fintech.