The task of setting a right balance in regulation, going forward, is still a global debate, in which the Bank of Thailand is closely engaged in our role in various working groups of the Basel Committee for Banking Supervision. On the one hand, it is critical that the global financial system reestablishes such trust, and ensures stability, integrity, and fair consumer treatment. On the other hand, the crisis has highlighted the complexity of the financial system, and the globalness of financial contagion. Thus, there is a critical need for the authorities and the financial market to work together to ensure that the emerging global standards and regulations can handle such complexity, and remain risk-focused at the economic and financial system, both in the national and global contexts. It is also important to avoid introducing distortion and risk of regulatory arbitrage between financial markets, products, and strategies, and most importantly, arbitrage between countries. Thus, the strong impetus on supervisory coordination, cross-border risk and coordination, as well as macro-prudential aspects are the new challenges. Turning to the situation in Thailand, thus far, despite some set-back in terms of economic contraction in the past year, both the Thai economy and financial system have shown resiliency and robustness. This helps to stand us in good stead, and provide a strong grounding to forge our strategy to handle coming challenges. Nevertheless, looking ahead into the longer term, Thailand’s economic and growth potential is still not fully and efficiently harnessed. Economic efficiency, international competitiveness, and economic stability are keys to sustainable growth.

A robust and stable financial system, that we have managed to ensure so far, is a necessary, but not sufficient condition for achieving sustainable growth. Financial system efficiency needs to be upgraded, so that it serves to lift economic efficiency, not least by harnessing the hitherto untapped strength of the grass-root economies, where the emerging organic social-economic network has increasingly highlighted the potential contribution to growth and welfare improvement. For the banking system, the strategy to harness this potential is set out in the Financial Sector Master Plan Phase 2, which is a continuation from Phase 1. BIS Review 20/2010  1  Ladies and gentlemen, The challenges I have raised, together, pose a tall order. So in today’s talk, let me set out our strategy and policy priority in three parts. First, the SWOT analysis of the banking system and the challenges we face; Second, the key strategies in the Financial Sector Master Plan Phase 2; and Third, the key measures in risk-based supervision to ensure stability. First, the strength of our banking system is evident in its continuous solid performance. During the toughest times, our banks remained strong and resilient against the backdrop of economic slowdown. Loan decelerated, partly due to contraction in corporate portfolio and deceleration in household portfolio, as a result of more cautious business undertaking and household spending, and partly due to tightened loan underwriting standard. The good news is the figures are already starting to pick up again.