Improved from Basel I, Basel II provides guidelines for maintaining capital for more comprehensive types of risks. Under Pillar 1, as you know, banks are required to maintain minimum capital for operational risk in addition to market and credit risks as previously required. And on top of the minimum capital, additional capital may be recommended by national supervisors under Pillar 2 for risks not covered by Pillar 1. Because Basel II will be imposed on a wide range of financial institutions with different sophistications, the framework offers several approaches to calculate minimum capital, ranging from a simple factor multiplication approach to model-based methodology. Obviously, we as supervisors, expect complex financial institutions to adopt the model-based methodology for a better measurement and assessment of risk. One important point I would like to stress here is that Basel II should not be viewed as merely a capital calculation methodology. Rather, it should be seen as a principle-based guideline for sound risk management. This is because Basel II’s advanced approaches are derived from the best banking practice. It is, therefore, a vehicle for better risk management. Banks in emerging markets, including here in Thailand, should, therefore, take advantage of this opportunity to improve their operations. From the perspective of financial information, it is also necessary for banks to produce good quality financial statements so that stakeholders will be well-informed, and a sound judgment on their financial status can be made by the market.

Bandid Nijathaworn: “Implementation of Basel II and IAS” from a regulator’s perspective Keynote address by Dr Bandid Nijathaworn, Deputy Governor of the Bank of Thailand, at a meeting hosted by the Thai Bankers’ Association and organized by the Bankers Association of the Philippines and ASEAN Bankers Association, Bangkok, 4 October 2007. *  *  *  Distinguished Participants, Let me first thank the Thai Bankers’ Association for the invitation to give today’s keynote address, on the “Implementation of Basel II and IAS” from a regulator’s perspective. Looking at the agenda, the meeting in the next two days will dwell into a number of important regulatory issues. Therefore, to help set the stage for the discussion to follow, I would like to take this opportunity to speak on the Bank of Thailand’s perspective on the implementation of Basel II and the International Financial Reporting Standards (IFRS), looking in particular at the benefits from such adoption, the progress we have made on implementing the two standards, and the challenge and adjustments that need to be made for a successful implementation. Ladies and Gentlemen, Recognizing that today’s global financial system has become increasingly complex and interdependent, a number of organizations around the world have been working on improving international standards to ensure sound risk management and disclosure by financial institutions. Among these, Basel II and IFRS are undoubtedly the most important recent efforts. As an international framework for capital adequacy, Basel II is designed to ensure soundness and stability of the global banking system.