This report is the first in a series that addresses the future of the banking industry in Asia and how regulation and economic policy will transform Asian banking. The report describes two major uncertainties facing the financial services industry in Asia, the strength of the integration of cross-border liquidity flows and the pace of deregulation of fixed income markets. Based on how these two uncertainties play out, four possible scenarios for Asian banking are explored. The correct choice for a bank in Asia will depend upon its current business model and its expectation for the evolution of the regulatory uncertainties in its target markets.
The Asian banking sector will not be able to avoid a deluge of new regulatory reforms emanating from North America and Europe. However, the impact of Basel III and other global regulations will be more limited in Asia than in the West. The key challenges and uncertainties for the Asian banking sector revolve around the degree of cross-border integration of capital flows and the extent of local capital markets liberalization.