This means that, we will be able to take care of systemically important financial firms outside current regulatory purview if the situation warrants. Ladies and Gentleman, Lastly, let me share with you what I see as major challenges for the maintenance of financial stability in Thailand. While we may have a head start over many countries, we are not in anyway complacent. In particular, three important challenges loom on the horizon. First, the global economy, while doing much better than a year ago, still have many vulnerabilities which could give rise to the next round of global financial instability. Most importantly, the public debt problems in certain European countries constitute a major risk factor. At the other end of the spectrum, the growth and interest rate disparity between Asia and advanced economies amidst the still abundant global liquidity from the unprecedented monetary policy stimulus around the world could attract de-stabilizing capital inflows that will put pressure on exchange rate, encourage a buildup of financial institutions’ short-term debt, and fuel bubbles in various sectors. Second, in light of the possible buildups of financial imbalances, there is a need to further enhance the ability to identify potential threats early on. For example, at least in its early phase, bubbles are almost always associated with favourable economic fundamentals. Effective monitoring of bubbles therefore calls for better data collection, market intelligence, and risk analysis. While timely bubble identification remains very difficult, the good news is that better identification techniques are being developed and will continue to improve.

Finally, there is a need to watch the developments in international regulatory reforms very closely. It is true that a plethora of proposals have been discussed in the world stage, but some may impose more costs than benefits to Thailand. After all, many regulatory pitfalls that gave rise to the recent global financial crisis do not apply to us, for example, those related to securitization. In addition, some proposals may be more stringent than necessary given the nature of financial transactions in Thailand. For example, the currently proposed leverage ratio requirement treats banks’ letter of credit (L/C) the same as complex derivatives, which will impose substantial costs on Thailand’s trade finance business. The challenge here is therefore to weigh carefully the benefits, the costs, the necessity, and the appropriate timing for the adoption of the new international standards so as to ensure that our financial system is not overburdened by unnecessary rules. Again, this highlights the tradeoff between financial stability and financial efficiency Ladies and gentlemen, In closing, let me reiterate that the Bank of Thailand gives great care to both price stability and financial stability. The policy responses undertaken by the Bank over the past few years have helped preserve the Thai financial system’s resiliency which in turn contributed to the economy’s turnaround. Despite challenges in the period ahead, we will try our best to ensure  4  BIS Review 96/2010  that Thailand’s economic and financial stability continues to remain intact so as to support the economy’s sustainable long-term growth.