The closure of the Strait of Hormuz in March cut global oil supply by 10.1m barrels a day, the largest disruption on record, and exposed a limit to Asia’s financial defences. The Association of Southeast Asian Nations+3 over a third of its oil and gas from the Middle East. Stronger balance sheets cushion the consequences of that dependence. They do not remove it. The International Monetary Fund expects regional growth to slow to 4.4% from 5% last year, with inflation rising, external balances weakening, financial conditions tightening and policy space narrowing.
The distinction between buffers and exposure frames Governing Finance for Sustainable Prosperity – an initiative of the Asean+3 Macroeconomic Research Office, the Council on Economic Policies and the South East Asian Central Banks Research and Training Centre. Earlier this year, the initiative hosted three roundtables in Tokyo, Seoul and Singapore to examine how financial governance should adapt to structural change.
A previous OMFIF commentary argued that resilience has become a governing ambition without operational meaning. The roundtables offered a practical route beyond that critique: defining what should be protected, identifying where exposure accumulates and examining whether policy instruments reduce it.
Asia is not starting from scratch. After the 1997 crisis, which began in Thailand, the region built reserves, deeper local-currency bond markets, AMRO surveillance and the $240bn Chiang Mai Initiative Multilateralisation – over $8.6tn in potential crisis-fighting resources in total. That architecture helps absorb financial shocks. It does less to reduce real-economy exposure to energy, climate, supply-chain and digital risks. Closing that gap is the second-generation agenda: extending existing protections, not displacing them.
What the roundtables bring into focus
Energy, climate and trade disruptions interact with structural shifts in digital finance and artificial intelligence. CEP and AMRO describe a world of novel risks: systemic, deeply uncertain, frequently cross-border and liable to materialise together. They put resilience at risk and need to be governed explicitly.
The roundtables pointed to three early conclusions. First, resilience must be operationalised to be governed. Authorities should answer five questions that guide instrument choice and policy formation: resilience of what, to what, for whom, measured how and governed by whom? The answers will differ by risk-driver.
Second, resilience means more than capital buffers. Buffers absorb losses, including unanticipated ones. Where risk-drivers are visible, resilience also requires reducing exposure and vulnerability beforehand. This means investing in diversification and the productive capacity that keeps essential systems functioning, while treating business continuity as standing practice rather than crisis response.
Third, the space to absorb shocks is shrinking. Repeated shocks erode fiscal room. As insurers facing correlated losses narrow cover, more residual risk settles on corporate balance sheets. If banks retrench simultaneously, asset sales turn correlated, credit contracts and firms lose the financing resilience investment needs. Prudence at the firm level becomes fragility at the system level. Breaking that loop requires coordinated incentives, not simply larger buffers.
From discussion to instruments
Exposure-reducing investment has long lead times. It must begin when risk-drivers become visible, not only when losses appear. Hormuz made the sequencing plain: dependence shaped the size of the impact; buffers and policy space only shaped the response.
Local-currency transaction frameworks can reduce reliance on third currencies in regional payments; Singapore and Indonesia operationalised theirs in August. The Asean Power Grid can diversify energy access, reduce vulnerability to imported-fuel disruption and support the low-carbon transition. These initiatives address exposures that emergency liquidity cannot remove.
Central-bank instruments are evolving too. The Bank of Japan’s climate-response financing operations support private climate investment. Singapore’s pandemic facility, priced at 0.1%, lowered banks’ funding costs to sustain small and medium-sized enterprise lending. Malaysia’s Climate Finance Innovation Lab supports energy-transition financing, alongside Bank Negara Malaysia’s work on incorporating climate risk into prudential standards. Bank Indonesia uses regulatory liquidity incentives to steer lending towards priority sectors, including green activities.
The next step is a standing resilience toolkit: regulation and central-bank instruments assessed and adjusted to reward investment before shocks occur, complementing the buffer regime rather than replacing it. Buffers protect solvency and lending capacity. Alone, they do not remove exposure or keep critical functions running under stress.
Monetary policy is part of the same question. Tightening after a shock raises financing costs for the long-lived, capital-intensive projects that would reduce exposure to the next one. Targeted refinancing can lower that cost in advance. If eligibility is tied to the areas hit hardest by tightening, the overall stance need not soften; only the burden shifts. CEP’s work identifies the design choices: pre-defined eligibility, volume limits, sunset clauses and public reporting. Mandate boundaries still apply. Targeted refinancing must not become a second fiscal policy.
Supervision completes the toolkit. Authorities should identify critical functions, concentrations of exposure and connections to non-bank intermediaries and digital platforms. Capital and liquidity assessments should rest on scenario ranges, not only point estimates, because stress tests calibrated on history cannot capture unfamiliar risks. Above all, it takes a willingness to act under uncertainty. The Federal Reserve’s review of Silicon Valley Bank found that supervisors kept accumulating evidence after material weaknesses became apparent. Once data show stress, it is usually too late.
No agreed measure of resilience or financial stability exists, nor does one for financial stability. Supervisors judge stability; they do not measure it. Judgement must therefore extend through balance sheets into the real economy, and it can start now, by mapping exposures, assessing vulnerabilities and establishing whether existing instruments add to or reduce these vulnerabilities. Adjusting them cannot wait for the metrics.
What Asia should settle
The instruments exist. What is missing is the decision to use them systematically. The IMF-World Bank annual meetings in Bangkok on 12-18 October, the first there since 1991, offer an opportunity to use them.
AMRO has set out the financing case for CMIM’s evolution within the global financial safety net. The agenda advanced here is its real-economy counterpart: balance sheets and coordinated financial system policies that strengthen the economy’s capacity to adapt, rather than relying on financing and borrowing once disruption arrives.
Asia should put this second-generation agenda on the table in Bangkok and at its upcoming regional meetings. National authorities should answer the five questions posed by the AMRO roundtables and start adjusting instruments; regional co-operation will spread the lessons. Private capital belongs in the process – residual risk now sits on corporate balance sheets.
Policy-makers cannot prevent every shock, but they can influence how prepared the economy is to deal with them, by reducing exposures, protecting essential functions and preserving policy room. Asia built its first generation of financial defences after a crisis. It should build the second before the next.
Julia Bingler is a Senior Fellow at the Council of Economic Policy. Udaibir Das is Vice Chair of OMFIF.
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