Investment spending, in theory and in practice, is highly procyclical and more volatile than GDP. In general, this holds for the CESEE region, as well. Therefore, there is no doubt that significant part of the observed slowdown in investment demand in the CESEE region after the crisis is cyclical in nature. In addition, simple analysis of relative volatility of investment points out to a decline in volatility of investment in the period after the crisis, which could be an indication of an unsustainable investment boom in CESEE region before the crisis. 3  Table 1: Pro-cyclicality and relative volatility of investment Correlation between y-o-y change in investment and GDP  Volatility of investment relative to GDP*  Volatility of investment in CESEEE relative to EU28**  2001-2008 2009-2017 2001-2008 2009-2017 2001-2008 2009-2017 CESEE 0.93 0.93 5.20 3.99 2.02 1.29 EU28 0.89 0.98 3.38 3.31 *std.deviation of the y-o-y change in investment relative to std.deviation of the y-o-y change in GDP *std.deviation of the y-o-y change in investment in CESEE relative to std.deviation of the y-o-y change in investment in EU28 Source: Eurostat and NBRM calculations. Nevertheless, the observed slowdown in investment activity is persistent which might have negative impact on growth potential of CESEE region. Investment flows define capital dynamics by renewing and augmenting capital stock, which in turn is one of the determinants of potential growth. Lower investment also implies faster depreciation and lower maintenance of capital stock.

In short, a reshaping of global financial landscape. Moreover, the extraordinary macroeconomic and prudential measures deployed to stabilise the market, while having been vital and successful, have left a legacy. There has been a shift in global financial landscape, as rescue and intervention operations led to the redistribution of asset ownership, between state and private sector, and between nations, further complicating the intricate linkages within the global economic and financial system. These forces will, no doubt, have important bearing for systemic risk, cross-border supervisory coordination, and financial stability going forward. These are the dynamics of structural change that unleash a new paradigm for financial market and regulation. At the core of this force is the public demand for greater assurance of stability, through stronger mandate for governance and accountability of financial institutions and regulators. The response to this has been a sweeping reform package championed by the leader of G20 that will reshape the global supervisory standards. Ladies and gentlemen, The key challenge for regulators in emerging markets such as the Bank of Thailand is to deploy strategies that help to ensure that emerging global standards remain aligned with riskbased principle, consistent with emerging markets’ national contexts, and that our adoption of new reforms are based on those measures and reform agendas which are relevant and practical in our context. Equally important, banks in emerging markets such as in Thailand also need to further strengthen risk management to handle changes in global landscape, uncertainty, and strengthened regulatory framework that emerges as a result of this crisis.