Tarisa Watanagase: Setting a balanced regulatory reform agenda – the global challenge and an emerging market perspective Keynote address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the Symposium of SEANZA Forum of Banking Supervisors 2009 "Global Crisis: Challenges for Risk Management and Regulatory Framework”, Phuket, 31 October 2009. *  *  *  Distinguished Colleagues, Ladies and Gentlemen, It is a great pleasure to join all of you here at the Symposium of SEANZA Forum of Banking Supervisors 2009. I am honoured to have the opportunity to share with you my thoughts on the global crisis, and challenges it poses for risk management and regulatory framework, particularly from emerging market perspectives. Despite the recent indication of increasing stabilisation of the global financial markets, the extent of the impact of this crisis and prospect of sustainable recovery still face many uncertainties. This financial crisis has been the most severe in modern time. Not only in terms of width and depth of its impact globally, but more importantly, it has brought into question the very tenet of modern capitalism, the trust in market mechanism, and the rationale for regulation. In short, it ushers in a new paradigm in global financial landscape and regulation. The forces unleashed by the crisis are very powerful, and will continue to drive fundamental changes going forward. We witnessed a widespread collapse of financial institutions worldwide, the apparent demise of certain business models, such as the investment bank, and retrenchment of critical markets such as mortgage securitisation market.

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.