The Licensing Facilitation Act helps acquiring permits easier and more transparent for all businesses. The Royal Decree on Review of Laws and Regulations requires that all laws and regulations be reviewed once every five years to ensure that necessary adjustment be made to accommodate dynamic changes in business practices. The Payment System Bill is meant to replace the old governing laws and regulations that are dispersed under many different authorities, especially electronics and digital payments, and allow the Bank of Thailand to be the sole regulator in this field. The Eastern Economic Corridor Bill will establish a special economic zone across three provinces to attract investment in industries of the future with extensive infrastructure investments to support transport, logistics, and public utilities. The last group of legal reform is to strengthen long-term sustainability. The Fiscal Responsibility Bill will impose fiscal discipline through improvement in public spending transparency and governance of overall fiscal management. More importantly, future governments will find it very difficult to conduct open-ended populist policies, as the law will require the government to calculate costs and identify sources of fund ex-ante. The introduction of the Inheritance Tax Act and the Land and Building Tax Bill will augment prudent spending by expanding the government’s ability to collect revenue and ensure a better tax structure to deal with future liabilities, promote greater fiscal balance, and reduce wealth inequality. All these developments will promote administrative efficiency and improve ease of doing business in Thailand.

Third, the atomisation of risk has been accompanied by higher leverage embedded in the instruments themselves, making it hard to assess which of these countervailing effects prevails. While atomisation of risk mitigates the impact of a shock, leverage amplifies it. For instance, “singletranche” collateralised debt obligations (CDOs) substantially increase “embedded” leverage: a singletranche CDO is generally leveraged 5 to 10 times, meaning that potential losses are 5 to 10 times greater than the losses on the underlying portfolio. This is a type of leverage that does not show up in lending figures. Assessing the extent and effect of embedded leverage on a system-wide basis is therefore a real challenge. Lastly, market liquidity can be very fragile. Indeed, it is now much easier to trade credit exposures thanks to standardised credit derivative indexes. However, liquidity remains very uneven among CRT markets and cannot be guaranteed under stressful market conditions. Many institutions are also vulnerable to “runs”. Market liquidity dry-ups therefore constitute one of the risks to be assessed. 3. What are the implications for central bankers and supervisors? I would like to suggest three approaches: First, remind market participants and investors that benign times, such as the current credit environment, should not be the benchmark for assessing risks. Credit risk transfer markets remain untested in stress situations. The US subprime mortgage market is a bellwether reminding us that excesses in credit growth and relaxation of lending standards are paid for sooner or later by much higher risk premia.