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. in short, a reshaping of global financial landscape. moreover, the extraordinary macroeconomic and prudential measures deployed to stabilise the market, while having been vital and successful, have left a legacy. there has been a shift in global financial landscape, as rescue and intervention operations led to the redistribution of asset ownership, between state and private sector, and between nations, further complicating the intricate linkages within the global economic and financial system. these forces will, no doubt, have important bearing for systemic risk, cross - border supervisory coordination, and financial stability going forward. these are the dynamics of structural change that unleash a new paradigm for financial market and regulation. at the core of this force is the public demand for greater assurance of stability, through stronger mandate for governance and accountability of financial institutions and regulators. the response to this has been a sweeping reform package championed by the leader of g20 that will reshape the global supervisory

. when there are prospects of moderate economic activity, low wage growth and low inflation, norges bank will reduce the interest rate. this will normally result in a depreciation of the krone. prices for imported goods and services will increase. a weaker krone strengthens the competitiveness of norwegian enterprises and indirectly leads to higher output, employment and inflation. themes in foreign exchange markets shift. in periods, investor focus on stock returns feeds through to exchange rate movements. during periods of political and economic unrest, investors may choose individual currencies as a safe haven - often the swiss franc. in autumn 2002, the norwegian krone was probably also perceived as a safe haven. in addition, oil prices rose as a result of the uncertainty associated with the war in iraq. in autumn 2003, the krone showed a tendency to appreciate against the euro. this partly reflected lowered market expectations concerning an interest rate increase abroad and expectations that interest rates might rise earlier in norway than in other countries. at the same time, the euro appreciated in relation to other currencies. changes in the krone resulted in an unintended tightening of monetary policy. this trend was reversed in december owing to low inflation figures and a reduction in interest rates. the interest rate reduction was probably of considerable importance as it eliminated the excess return on nok investments. the krone has appreciated again in the last couple of months. the appreciation of the krone, if it persists, may curb inflation one to two years ahead. past experience shows that the krone is at times heavily influenced by developments in the interest rate differential between norway and other countries. this is given weight in interest - rate setting. however, as mentioned, themes in foreign exchange markets shift, and norges bank does not have instruments to fine - tune the exchange rate. normally, norges bank will not intervene in the foreign exchange market in order to influence the exchange rate. exchange market intervention, irrespective of whether foreign exchange is bought or sold, is not an appropriate instrument for influencing the krone over a longer period. we do not wish to act in a way that may trigger a game situation in the foreign exchange market. foreign exchange intervention rather than a change in the interest rate may give ambiguous signals to foreign exchange operators and a game situation may arise. however, interventions may be appropriate if the krone deviates substantially from the level that the bank judges to be reasonable in relation to fundamentals, and if exchange rate developments