what is often called the “ bank - bonus culture ”. shorttermism may encourage excessive risk - taking, since less attention is paid to low - probability outcomes which might only crystallise over longer periods of time. more worrying is the fact that it can exacerbate the impact of conflicts of interest and perverse incentives at all levels within a financial institution. considerable thought is being devoted to compensation - related issues both by the official sector ( e. g. the financial stability forum ) and market participants themselves. sound and reasonable principles for compensation schemes at large financial institutions, including incentives for prudent long - term behaviour, and a real adjustment to risk are some important ways for reform. a second factor to be addressed in our response to the crisis relates to the enhancement of transparency in financial markets. as the turmoil has shown, the availability of aggregate information regarding the main risks to the financial system is of the essence. information on institutions, instruments and markets that are currently unregulated, but whose risks raise financial stability concerns on account of their potential systemic impact, proved to be crucial for effective financial stability monitoring and accurate risk assessment. one clear example of some first steps taken in the right direction relate to the initiative to establish a central counterparty clearing house for the cds market, a move that i strongly welcome. this would be a first important contribution to increasing transparency in over - the - counter ( otc ) derivatives markets. increasing the number of standardised securities exchanged on regulated markets would also make it easier to price these financial instruments, based on relevant public information and on traded prices. finally, a third factor that, in my view, needs to be addressed is the excessive pro - cyclicality of the financial system in its entirety, i. e., the tendency of the financial system to accumulate too much risk and leverage in good times, and to shed risks hastily in a downturn. we should endeavour to systematically eliminate wherever possible the elements that reinforce or amplify the spontaneous cyclicality of the financial economy. in particular, but not exclusively, we have to reassess from this point of view capital requirements, valuation and leverage, provisioning regimes as well as banks ’ compensation schemes. in this field, i also welcome the work being carried out under the auspices of the financial stability forum. iv. first lessons drawn from the current situation we are going through an exceptional period marked by a recent intensification of the financial turmoil since last september and by a major slow

euro crisis. a flexible exchange rate regime allows flexibility in responding to exchange rate movements. however, in a world where global liquidity is especially fluid due to loose monetary policies in the us and the euro zone, can exchange rates move out of line with fundamentals for prolonged period of time? this is an issue that faces not only australia and thailand but also the region as a whole. as a life - long central banker, i ’ m sure governor glenn stevens can give us the broader perspective on this issue. 4. i sincerely hope that the common lessons learned from our experiences within the region will help us, and indeed other central banks, better manage the complexities of the global economy. 5. before we hear from governor stevens, i wish to take this opportunity to thank all guests for joining us at this policy forum to mark the 70th anniversary of the bank of thailand. many of you here have been an integral part of our policy progress over the past many years. on this note, may i propose a toast of appreciation to all of you and of hope that many of you will continue to support a common vision toward building further policy progress for the well - being of all thais in years to come. 6. thank you. bis central bankers ’ speeches