Australia's increased level of integration with the Asian economy is showing up in stronger linkages between the Australian and Asian banking systems.According to the Reserve Bank's latest Financial Stability Review, this development offers Australian banks the benefit of diversification but has to be managed carefully to avoid the adverse consequences of any economic downturn in the region.Integration has been a two-way process. The RBA said that some Asian-owned banks seeking to expand their business in Australia are competing aggressively for syndicated loans and have increased their share of the market noticeably over the past year.Asian banks' share of the Australian syndicated loan market has increased from 13 per cent in 2007 to 18 per cent in 2011 and to 23 per cent last year. This growth has offset a decline in European bank activity over the same period. European banks' share of the local syndicated loan market fell from 36 per cent in 2007 to 28 per cent in 2011 and to 24 per cent last year.Australian banks' share rose from 40 per cent in 2007 to 44 per cent in 2011, but fell to 42 per cent last year.Going in the other direction, Australian banks' aggregate foreign exposures represent one-fifth of their total assets. Foreign claims, as a share of consolidated assets, dropped slightly, from 23.2 per cent in 2007 to 22.2 per cent last year.New Zealand makes up the biggest portion of this exposure, at 8.2 per cent, followed by the United Kingdom, at 4.8 per cent. There has been strong growth in the Asian region, where the share of total assets has grown from 1.2 per cent in 2007 to 3.6 per cent last year. In dollar terms, exposures have increased from $27 billion to $112 billion.Almost all of these exposures are held by the major banks. The bulk of the exposures are in the financial centres of Singapore and Hong Kong, as well as China and Japan.The RBA said that Australian banks' loan performance in Asia has been good, reflecting the region's strong economic conditions.Despite the focus on ANZ's move into Asia, most of the Australian banks' exposures in Asia are cross-border claims, where the counter-party resides in a different country to the banking entity. The bulk of the business appears to be trade facilities.The escalation of the euro area debt crisis, and the associated pull-back of some euro area banks from the Asian region in 2011 and early 2012, has created opportunities for Australian banks to expand their trading finance business in the region.