Catalog

	Table of Contents
p. 48 of 58 BACK | NEXT Purpose and Structure of the Toolkit Part One: Introduction and Overview Part Two: Preconditions and Infrastructure for Financial Sector Development Part Three: Financial Regulation and Supervision Part Four: Regional Financial Integration I. European Financial Integration II. Trade in Financial Services III. Chiang Mai Initiative IV. Asian Capital Market Development Part Five: ADB's Intervention in the Financial Sector Bibliography Glossary and List of Abbreviations Acknowledgements

Financial Sector Legal and Regulatory Toolkit

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Part Four: Regional Financial Integration

Part Four will discuss financial sector integration, mainly in the regional context. Financial integration is associated with capital mobility, as the extent to which an economy’s financial system is neither shielded nor made distinct from other national and international capital markets. It is the antithesis of the Bretton Woods international financial system that prevailed for almost thirty years following World War II. Such integration is difficult to identify consistently (Gkoutzinis 2006a) because it can often be quantified only by proxy, and since its use was for a long time conflated with other forms of integration. The concept is now more carefully considered than before the 1990s, prior to which views as to what integration might mean were undeveloped and reflected a contemporary view that all aspects of finance were subservient to trade or production. Financial integration emphasizes wholesale activity and examines only secondarily those aspects of retail financial intermediation involving non-professional individuals. Thus legal or customary borders to the trade in retail financial services prevail even in well-integrated regions such as the European Union (Burns and Wells 2008).

Financial integration has also been taken to refer to the extent of correlation in price performance of markets or systems, for example in securities or interest rates (Chi, Li, and Young 2006, Yeyati, Schmukler, and Van Horen 2006). It implies “mobility of capital and substitutability among comparable financial assets in terms of yields, maturities and risk in international financial markets” and the expectation of a “full speedy adjustment of asset stocks in response to price changes” (Shepherd 1994, 77–79). Thus true financial integration can be expected to lead to an international convergence of financial asset prices. Financial integration is taken to be distinct from integration in commerce, economic policy, monetary policy or political cooperation, even though such policies may be inter-related, and despite relying upon mechanisms commonly identified as political.

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