Addressing Novel Risks, Strengthening Finance, and Building Resilience in ASEAN+3

and | 1 September 2025
Monetary, Policy Briefs | Tags: ASEAN+3, Central Banks, Climate Risks, Financial Regulation, Financial Supervision

 

Welfare and economic growth in ASEAN+3 depend on the region’s ability to align economic priorities and the effective management of novel risks with the need to address structural challenges, associated transformations and the ability to harness future opportunities.

Solutions to immediate challenges, such as the cost-of-living crisis and the increasing frequency and intensity of extreme weather events, will be more beneficial if aligned with strategies to manage long-term structural changes, such as ageing populations and transitions towards climate-resilient economies. Seizing the opportunities presented by profound structural transformations will be essential for economic growth, societal welfare and sustainable prosperity.

Some novel risks, like those stemming from climate change and nature degradation, ageing populations or advances in artificial intelligence and digitalization are unprecedented, systemic, and associated with deep uncertainties. Furthermore, there is a higher likelihood of compound risks materialising concurrently. Thereby, some novel risks pose considerable challenges to standard financial risk management methods and require adjusted and unique approaches to sustain financial stability, price stability and balanced prosperity. At the same time, they are associated with profound structural economic changes, which, if well managed, represent considerable economic and financial opportunities.

Financial markets, being at the center of risk management and enabling economic growth, could exacerbate risks and vulnerabilities, or contribute to resilience, harness opportunities and sustain prosperity.

Central banks and financial supervisors have important instruments to support an orderly financial market response to deep structural changes, to ensure price and financial stability, and to developing financial markets towards harnessing the opportunities of change.

For example, various central banks and financial supervisors in the ASEAN+3 support human capital development, aim to advance financial inclusion, and consider climate-related risks for managing price stability and financial stability, making use of novel innovative, collaborative governance approaches and adopting “whole of the nation” strategies.

It is now the correct time to scale up central bank and financial supervisory measures, ensure that risk management expectations for novel risks are comprehensively met, and that investment opportunities into sustainable prosperity are unlocked at scale.

This policy brief outlines various approaches and next steps that ASEAN+3 financial supervisors and central banks can consider in their financial supervision and monetary policy implementation to meet novel risk challenges, to maintain price and financial stability, and to support sustained economic growth.

Next Steps for Central Banks and Financial Supervisors

– Financial Supervision and Regulation

Microprudential

  • Update guidance for risk-weighted assets calculation to account for novel risks, especially for market risk and credit risk standardized approaches (SA) and internal ratings-based approaches (IRB).
  • Adjust risk weights for specific assets that considerably contribute to the overall exposure of financial markets and the real economy to novel risks.
  • Issue novel risk management guidance for novel risks and ensure that the risks are appropriately reflected in the risk appetite statements and the Internal Capital Adequacy Assessment Process (ICAAP) produced by financial institutions.
  • Review the implementation of supervisory expectations in supervisory dialogues with financial institutions, assess compliance and identify areas for improvement.
  • Align disclosure requirements such that comparable, decision-useful, strategic information enables forward-looking analyses of novel risk exposures and related opportunities.
  • Co-operate in regional fora and working groups and with multilateral institutions to adopt policies based on best practice approaches, reduce regulatory fragmentation and enable regional capacity building.

Macroprudential

  • Embed novel risks in macroprudential surveillance activities.
  • Implement or adjust macroprudential tools, such as capital buffers, to ensure their effectiveness for financial resilience in the light of novel risks and to mitigate the build-up of these risks.
  • Regularly revise and recalibrate tools as novel risks intensify or are mitigated.
  • Enhance collaboration amongst financial supervisors in the region and with core financially connected jurisdictions.

– Monetary Policy Implementation

  • Revise and adjust collateral frameworks and reserve requirements to appropriately account for novel risks and scale-up economic activities for sustainable prosperity.
  • Integrate novel risks in asset allocation and asset purchase programs.
  • Define expectations for fund managers about the management of novel risks and the maximization of exposure to future opportunities.
  • Revise all existing refinancing and credit schemes to align financial incentives and obligations with the need for investments that support sustainable prosperity and resilience.
  • Introduce targeted refinancing and credit schemes for specific sectors and activities that enhance resilience towards novel risks and contribute to sustainable prosperity.
  • Assess regularly the effectiveness of existing and new financing schemes towards the outlined goals and adjust the schemes if required.

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