schemes backed by the government and ultimately the taxpayer. on the other hand, excessively high capital requirements may unduly curtail banks ’ ability to provide credit to the economy. we should be aware that simulations like this are highly dependent on model specifications, so the results of these models need to be taken with a pinch of salt – and what is more, additional research is certainly needed in this regard. but it might encourage banks, particularly those which are currently only just managing to meet the basel iii requirements, to increase their capital beyond these requirements. one of the reasons why the banking industry usually objects to higher capital ratios is that equity is considered to be costlier than debt. there are good reasons why shareholders are better remunerated than creditors : equity is riskier than debt because debt is senior to equity and not performance - related. moreover, equity allows shareholders to have more of a say in a company ’ s business activities. the cost advantage of debt over equity, however, is also explained by differences in the tax treatment of various forms of investment. equity - based financing is placed at a disadvantage to debt - based financing. admittedly, reforming business taxation is notoriously difficult and would require a strong political commitment. also, efficiency improvements in business taxation often go hand in hand with revenue shortfalls or acute uncertainty over the fiscal effects of legal changes. of course, financial stability considerations are only of secondary importance in the field of business taxation. however, introducing a ( more ) neutral form of tax treatment for debt and equity financing would generally be efficiency - enhancing, besides reducing the attractiveness of being highly leveraged. improving the neutrality of business taxation in terms of the source of financing appears to be a topic that is well worth considering for the reform agenda. this is not an issue specific to banks but one which generally holds true for business taxation. the task of ensuring financial institutions ’ capital adequacy is, nevertheless, primarily a regulatory one. besides the basel iii regime, a host of other prudential rules have been tightened in response to the financial crisis. the stricter overall regulatory landscape has induced regulatory evasion : financial activities are being shifted out of the regulated banking sector into the unregulated shadow banking sector. l clerc et al ( 2014 ), capital regulation in a macroeconomic model with three layers of default, mimeo. bis central bankers ’ speeches according to the latest fsb global shadow banking monitoring report, non - bank financial intermediation grew

m r pridiyathorn devakula : achieving financial system stability welcoming remark by mr m r pridiyathorn devakula, governor of the bank of thailand, at the conference on banking sector issues : weak banks and systemic crises, bangkok, 18 - 20 february 2004. * * * distinguished panelists, honorable guests and participants, ladies and gentlemen, on behalf of the bank of thailand, i would like to warmly welcome you to the city of bangkok and this bis / fsi conference. my sincere thanks to our overseas speakers and guests who have followed through with your commitment to share your expertise at this international conference despite the recent outbreak of the bird flu. it is my sincere hope that you will take the opportunity to see more of our country beyond the conference hall and enjoy your stay here in thailand. at the outset, i would like to say i am honoured to have this opportunity to address a distinguished audience of bank supervising experts from all corners of the world. the conference has adopted the theme : banking sector issues : weak banks and systemic crises, a timely subject - appropriate and critical to bank supervisory authorities, since risk management is inherent in all commercial activities. i would like to suggest that this is a commonly faced challenge to us all, regardless of borders or stages of socio - economic development. i hope that over the course of this two - and - a - half days'conference, the deliberations, emerging from the experts and audience on a wide array of supervision - related issues, will shed more light on how best to deal with weak banks and systemic crisis. all banking supervisors and central bankers seek the “ holy grail ” aspiration for a stable financial system which is resilient and capable of returning to a balance after a shock. to fulfill this common goal, let me repeat a golden principle of sound banking supervision - prevention is fundamental to avoiding a banking crisis. we all know that handling a crisis is always very difficult and painful ; therefore, supervisors and bankers have a shared responsibility and accountability to prevent banking problems. supervisors must create a sound framework, foster a robust and effective system, and establish clear procedures to identify and deal with weak banks. this means the supervisors must be equipped with the legal power to effectively carry out their duties and have the necessary tools, resources and capacity to solve the problems. these are the necessary infrastructure or building blocks of a sound and stable financial system. equally important, the board and management of individual banks must shoulder the responsibility of monitoring and addressing