Thus, the reform agenda will need to pay proper attention to capacity building of banks and regulators. Nevertheless, there are warranted rationales for its use in financial stability tool kit in an appropriate manner, given national context. In terms of measures to address systemic risk, the proposed ideas include systemic capital charge, capital for OTC derivatives, and cross-border bank resolution framework. Again, the same emerging market issue and dimension should be properly recognized. Turning to the key microprudential policy framework currently being discussed at the international forums to ensure individual financial institution’s stability, the BCBS has proposed a package to address previous shortcomings in risk-based supervision as follows. For Pillar I, regulatory capital for securitisation exposure is enhanced. In addition, the quality and transparency of capital is strengthened especially Tier I capital, which would consist mainly of common equity and retained earnings. For Pillar II, supplemental guidelines are issued by requiring banks to manage firm-wide, concentration and reputational risks more effectively. Valuation and stress-testing practices are also improved. Moreover, compensation and bonus scheme should be aligned with longterm risk taking behaviour and performance. Turning to Pillar III, focus is given to disclosure requirements to reduce uncertainties associating with securitization exposures. Additional requirements include, for example,  2  BIS Review 131/2009  sponsorship of off-balance sheet vehicles, and resecuritisation exposures. On top of these, a new regulation on liquidity risk management, namely the so-called liquidity coverage ratio could be introduced, going forward, subjected to further work.

We expect banks to be able to finalize and start using their ICAAP by the end of December 2010, with the first ICAAP Report submitted to the BOT within the first quarter of the following year. The BOT would then begin reviewing banks’ ICAAP during bank examination that year. In assuring adequacy of capital over the business cycle, we believe it is very important to focus on countering procyclicality by ensuring capital and provision buffer, as well as to introduce IAS 39 which incorporates correction from problem or procyclicality as being considered by international standard setters and BCBS. Importantly, we emphasise the importance of consolidated supervision to ensure adequacy not only in capital but also riskmanagement of the entire banking group, particularly liquidity risk. In this regard, with respect to foreign banks, an important issue to push forward, in our view, is that of crossborder supervisory coordination, particularly better information sharing between home-host supervisors should be warranted. This is particularly important as the current crisis shows that there is a need for home supervisor of global financial conglomerate and banks to recognizing that global bank’s local operations may be systemically important for the host economies. In closing, I would like to share with you what I believe are the key changes in our financial landscape, resulting from this global crisis. First, bank business model would likely become more conservative, placing less reliance on wholesale financing and use of leverage, while focusing more on risk management and higher liquidity buffer.