Asia’s wholesale banking markets have performed exceptionally well in recent years. But even though this engine shows no sign of running out of steam, the underlying structure of the markets is already starting to change. Global banks once could operate out of financial centers in Hong Kong and Singapore and exploit cross-border flows, but they now face a future in which localization will be much more important. Consequently, they need new strategies and new tactics.

Participants in Asian markets (excluding Japan) have certainly enjoyed good times recently. Since 2003 wholesale-banking revenues have been led by investment banking and equities, which are estimated to have grown by 16 and 29 percent a year, respectively (Exhibit 1). The global banks have done particularly well, increasing their revenues by more than 50 percent over the same period (Exhibit 2).

The current wholesale-banking boom follows several previous cycles. Global-fund managers discovered the region, for the first time, in the early 1990s, prompting strong growth in Asian institutional equities. The middle of the decade saw investment flows...