It is desirable that banks have good risk management system with an ICAAP that covers all significant risks. However, this entails cost to both banks and supervisors, in terms of a much more detailed and comprehensive process, with methodological guidelines as well as a more challenging on how to achieve an effective implementation. We then believe it is important to balance and align complexity and timeliness of supervision with complexity and risk faced by emerging market. Second, we also need to balance between supervision, on the one hand, and market discipline and good governance in the following key areas. On the issue of bank capital regime, appropriate implementation of macro-prudential measures such as leverage ratio as supplement to Basel II risk-weight asset system is important. However, the key question is how to integrate appropriately additional non riskbased measures, with the existing risk-based regulatory framework, as it might weaken or lessen clarity of risk monitoring, and consequently risk management. We believe further work are needed in terms of refining the framework such as setting definition and coverage, including treatment of off-balance sheet items, as well as the trigger-point for enhanced surveillance or to take supervisory action. On the issue of valuation and leverage. The use of fair value, when significant uncertainty exists, may reflect current market expectation, and yet, lead to volatile balance sheet and difficulty in marking-to-market during market stress or breakdown. The BOT supports the IASB’s solution on reclassification of financial assets in “rare circumstance” as it offers more discipline than currently.

In a developing economy such as Thailand, the customary savings behavior is to save first and spend later. BIS Review 50/2004  1  Developing economies can and should benefit from this type of behavior since it allows for vital investments to be madc using domestic savings, thereby lessening reliance on extemal capital inflow, while at the same time promoting an economically viable savings-investment gap. On the other hand, the savings behavior of the west and developed economies tend to lean toward spend now save later. This type of behavior is practicable in western countrics due to many factors that can be summed up under the heading of high level of economic development. The existence of social welfare systems, mature capital markets, diversified economy, and highly educated workforce are a few factors that allow such countries to be able to grow under a relatively low savings environment. Without such factors, a country could find it difficult to grow and develop without straining its finances. Coming back to Thailand, it is possible to say that with more widespread usage of credit cards and other types of consumer loans, we can expcct Thailand’s savings behavior to become more in line with those of the developed economies. This trend is a double-edge sword that if not managed carefully can cause a severe negative savings-investment gap. Such predicament will worsen Thailand’s dependence an extcrnal capital inflow that historically has shown its ability to change direction rapidly and jeopardize macroeconomic stability.