Instead, the post-crisis consensus emphasizes the use of monetary policy as a "preventive" tool for financial stability, that is, not to allow monetary policy to sow the seed of asset price bubbles. An important lesson from this crisis is that an over-extended period of low interest rates can distort risk perception, leading to excessive risk taking and costly financial imbalances. Beyond the reorientation of monetary policy, the post-crisis consensus advocates the use of macroprudential policy as the first line of defense against the buildups of financial imbalances. In comparison to interest rate measures, macroprudential policy can address sector-specific financial stability concerns more directly without excessive side effects on the overall economy. Macroprudential policy differs from traditional prudential regulation in that it adopts a systemwide or systemic perspective. The idea behind macroprudential policy is that while financial institutions may be individually safe, collectively they may be at risk due to herd behaviors and their interconnections. Here, the U.S. subprime crisis serves as a case in point. Regulators thought banks were safe because they had off-loaded their subprime credit risk exposures through securitization and unknowingly allowed the market to grow out of hand. From a system-wide perspective, the risk did not go anywhere as banks, in search for good yields during the low interest rate environment, invested in securitized assets issued by other banks. The situation was further exacerbated by the complex interconnections among U.S. financial institutions whereby the failure of one institution greatly increased the probability of failure of others.

In July 2004, upon an assessment that the booming economy may result in the buildup of certain financial imbalances, the Monetary Policy Committee made the monitoring of “factors contributing to financial imbalances" a permanent part of its assessment and policy formulation process. As part of this macro-financial risk surveillance, signs of financial imbalances in seven key areas are regularly monitored: the property market, the stock market, the banking sector, the non-financial corporate sector, household-sector balance sheet, government finance and public debt, and the external sector, with the goal of establishing an early warning system for potential threats to financial stability, especially if the underlying imbalances are related to monetary policy actions. On the regulatory side, fully aware of the implications of systemic risk, we have incorporated macroprudential elements into our regulatory framework well before the concept became popular in the wake of the global financial crisis. Although we did not use the term, some of the prudential measures that we have deployed in the past few years were in the spirit of macroprudential policy of enhancing the resilience of the financial system over the cycle and of restraining the buildup of systemic risks. For example, in 2003, when we observed rising high-end real estate prices along with strong mortgage lending, we imposed a ceiling on the loan-to-value (LTV) ratio for residential property with the transaction price exceeding 10 million baht. Later in 2004, observing a significant credit card loan growth, we placed limits on credit card borrowing by instituting a minimum income requirement, among others.