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Fed's McDonough says Asia turnaround remarkable

NEW YORK: Federal Reserve Bank of New York President William McDonough said on Thursday Asia's economic turnaround was truly remarkable but the region still had some difficult repair work to do.

In a speech prepared for delivery to the Monetary Authority of Singapore, McDonough said Thailand, Indonesia, Malaysia and especially Korea had made "meaningful headway" toward recapitalizing their banking systems, ridding bank balance sheets of problem assets and improving supervisory and regulatory frameworks.

Asian economies suffered a serious setback in a crippling financial crisis from 1997-98.

"Without question, this is truly a remarkable turnaround," McDonough said according to a text of the speech made available to reporters in New York in advance of delivery.

"It must also be acknowledged that the economies of Asia are not out of the woods just yet."

Hard-earned progress on the banking front was already bearing fruit in that the economic contraction in Asia had generally been halted and in some countries reversed, McDonough said.

His speech focused mainly on the elements of a sound banking system. He said many emerging market economies suffer from a relative scarcity of savings in relation to large-scale investment needs.

"The banking sector in emerging market economies also tends to be more concentrated and represents a larger share of the domestic financial system, suggesting that, if problems occur, they are likely to have an amplified effect on the real economy," McDonough said.

The best defence against a sudden loss of public confidence is for banks to extend credit wisely, McDonough cautioned.

Turning to the essential elements of banking supervision, he said increased transparency and risk disclosure were essential. But disclosure practices have not kept pace with rapid changes in bank business activity and risk exposure.

He said it was urgent to achieve dramatic progress on disclosing companies' appetite for risk and concerns about revealing proprietary information should be secondary.

In Asia, where the risk of contagion is high, McDonough said more work needs to be done to improve the quality of disclosures regarding traditional banking activities. -Reuters