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.

Uncertainty and risk remains high, and I believe there are four key risk factors we need to focus on. First, sustainability of nascent “green shoot” global recovery remains a subject of financial market speculation, and will continue to drive trading position and volatility. The sign of recovery in global economy appears to be revealed as “green shoots” after a deep recession. This recovery is credited to a wide range of public intervention in major economies, which has boosted the subdued private demand as well as reduced uncertainty especially in the financial markets. However, the sustainability of the nascent recovery is yet to be confirmed, as the financial systems in major economies have not been fully repaired. Secondly, the timing and speed of the unwinding process of public stimulus packages have yet to be settled, the so-called “exit policy.” Thirdly, the difference in speed of recovery between major economies and emerging economies may also have important implications for cross-border capital flows, and financial market volatility, particularly exchange rate. The unstable differentials caused by rocky recovery paces, can give rise to large and volatile capital flows, which may have a tendency to be short-term and foot-loose. And fourth, uncertainty regarding global regulatory reform. In the immediate aftermath of the crisis, it is natural to observe the growing sentiment towards re-regulation, coupled with nationalisation of problem banks, the trend towards re-regulation has picked up momentum. Therefore, it is important to ensure that we do not swing from unquestioned faith in the market to unquestioned faith in the regulation.