It should also be ensured that the macroeconomic scenarios envisaged have a similar likelihood of occurrence in all jurisdictions and that the estimation of capital needs acknowledges the existence of diverse national accounting frameworks in which provisioning requirements are defined to differing degrees of stringency. As I said, while the challenges of this task are not minor, work is proceeding apace at the EBA, the ECB and NCAs to ensure that the exercise meets the best quality standards. 3. How are Spanish banks facing up to these exercises? We may well ask how Spanish banks are facing up to these exercises. As is known, the financial sector has recently undergone intense reform involving the clean-up of balance sheets, recapitalisation and restructuring, and the resolution of non-viable institutions under the recently concluded financial assistance programme. As you will recall, this process rested largely on an asset quality review exercise and a stress test similar to those now being undertaken as part of the preparations for the single supervisory mechanism. There are, in any event, some notable differences that should be taken into account when comparing both exercises. For instance, the Spanish asset review exercise involved an BIS central bankers’ speeches  3  exhaustive analysis of all domestic business, while its European counterpart will review a selection of portfolios, albeit encompassing both domestic and foreign-based business. Further, although the 2012 stress test envisaged a highly adverse macroeconomic scenario, its focus was on the loans portfolio of institutions in Spain.

For the advanced economies, it is the uncertainty about the timing of exit policy, and whether the commitment to fiscal consolidation by the major economies can be sustained given the adverse implications for growth. For emerging markets, there is uncertainty about the policy approach that emerging markets will use to manage large capital inflows particularly in Asia. This involves the policy choice between exchange rate management, monetary policy, and the use of macro-prudential and capital control. In my view, uncertainty about policy has been of most concern for financial markets, resulting in increased volatility and a constant shift in investor sentiment between risk aversion and risk appetite. As for Thailand, in addition to the global uncertainties, we also have our own home-grown uncertainty linked to domestic political developments, which have added another dimension of risk to economic recovery and to the prospect of Thailand’s growth in the longer-term. How has the Thai economy performed so far amidst all this risk and challenges? Today, an important decision was made by the Bank of Thailand’s Monetary Policy Committee to begin a process of policy normalization by raising the policy interest rate by 25 basis points to 1.50 percent. The decision represents the first increase in fifteen months since the policy rate was reduced cumulatively by 2.5 percentage points to cushion the economy from the global recession. But more importantly, it also marks an important turning point in our assessment of the economy’s growth and inflation outlook, taking into account the impact of the political situation.