But, the position and role of even smaller or medium size actors may also put them in a situation to have a strong influence on the system’s dynamics. There is a need to account for other dimensions of systemic importance such as interconnection, complexity, substitutability. Furthermore, the “systemic” character strongly depends on circumstances, the environment and the specific features of the financial system. Drawing up an a priori list of systemically important institutions would give a false sense of certainty. It may also fuel the moral hazard associated with such firms being perceived by markets as – exactly that – systemic. Various initiatives are currently discussed, including stronger cooperation between supervisors and, more controversially, additional capital charges. They certainly require further thorough analysis It is essential to avoid threshold effects and never forget that risks are continuous in nature, time-varying and state-contingent. The debate about systemic firms echoes also concerns about the activities and business models of some institutions. It is especially so in countries where public intervention to rescue the financial system was on a massive scale. The presumption is that smaller and leaner financial institutions would pose less risk to financial and macroeconomic stability than larger and more diversified ones. Yet, facts suggest this cannot hold as a general lesson from the crisis. Indeed, those banks which suffered most from the crisis were precisely those which were more specialized, such as the investment banks. By contrast, large universal banks, reliant on a large deposit base, could withstand the shocks comparatively better.

Then I will discuss the implications for Thailand, before moving on to policy navigation of the Bank of Thailand. Financial volatility has manifested itself throughout 2015. Let me briefly recap some of them: •  Only a few months ago, the Chinese equity market recorded one-day steepest loss of 8.5 per cent and trillions of dollars were wiped off from the global equity market within a day. The fluctuations in the Shanghai stock index perfectly exemplify the market volatility where from the beginning of this year the index rose by 60 per cent up to June, before collapsing to 10 per cent loss by August. •  There have also been sharp capital outflows from Emerging Markets, resulting in large Emerging Market currency depreciations. Indeed, the Institute of International Finance expects that capital flows to Emerging Markets will turn negative for the first time since 1988. •  On the commodity front, Brent Crude Oil price plunged below 50 dollars per barrel this year, having peaked at over 110 dollars just one year ago. Against this backdrop, market participants have been increasingly concerned about investment and business implications. So what brought about heightened volatility in the global markets? I will attempt to answer by highlighting two key sources of volatility. In the aftermath of the global financial crisis, unconventional monetary policies – most notably successive rounds of Quantitative Easing – were implemented by major advanced economies. This abundant global liquidity contributed largely to strong asset price gains and higher risk appetites.