frameworks. these may have negative impact on domestic financial markets, increase banks ’ cost, and thus reduce credit and financial market liquidity. in particular, the liquidity standard, which is not yet finalized, the calculation in the framework may not accurately reflect emerging market ’ s financial market, and the implementation could distort local financial market. there have also been concerns about the treatment of traditionally low - risk trade finance in leverage ratio which may impact growth and development. emerging asia is predominantly bank - based ; thus, basel iii will affect its financial intermediation relatively more than in the west, just at the time when financial intermediation is critical to support economic development and integration. some of these standards are still under discussion, and thus asia - pacific region already has a proactive regional strategy to help steer these regulatory reforms, such as through emeap forum, to reflect our economic and financial market context. with regard to the otc derivatives reform which aims to move otc derivatives trading on to exchanges and cleared through central counterparties. there are concerns regarding inconsistency of regulation between countries, infrastructure that is needed, and cost for users. for example, if national central counterparty is not a viable and efficient model for a small economy, then the cost of hedging would increase with higher risk weight under basel iii. meanwhile, if derivatives are cleared overseas, through regional or global central counterparties, we need to consider implication for cross - border supervisory coordination, financial stability, and development of local financial market and competition. on a related issue of dodd - frank act, restriction on proprietary trading of us bank could impact the liquidity of us dollar markets abroad, as well as liquidity of foreign government bond markets which are the back - bone of their monetary policy operation. another key issue going forward is the balance of authority between home and host regulators. there are concerns about the proposal of financial stability board on cross - border resolution of global systemically important financial institutions, or g - sifis. the concern is that some host regulators may not be included by the home regulator in the crisis management group or resolution planning, even if the institution is systemically important in their jurisdictions. we are glad to see the fsb taking initiatives to identify potential problems. now it is the time to work together on solutions in an inclusive manner. this is because the inclusiveness of the process assures acceptability and commitment, and reduces the uncertainty from unilateral action of individual

bonds to cover losses in the financial system. today, the thai bond market is therefore much larger, at 38 % of the gdp. we have a much more active market. what does an active bond market mean to monetary policy? i will highlight three points. first is the implication on transmission mechanism. when the central bank wants to change stance in monetary policy, it changes interest rate up or down. but it does not directly change the interest rates along the whole spectrum of the yield curve. it only affects the key policy rate, which in the case of thailand is the very short - term 14 day rate in the repurchase market. however, to have an impact on the real economy, there must be a way to transmit this signal all the way to the financial activities that determine economic transactions, such as business capital formation, household consumption and savings. the traditional channel is through commercial banks. and now we have another channel through the corporate bond market. this channel is poised to grow more rapidly in the future. the second aspect is that central bank also operates in the government bond market in its conduct of monetary policy. it can sell and buy bonds to pump money in or out of the system, through their open market operations. an efficient, deep and liquid bond market therefore will not only help make the intermediation process competitive and active - but also allow the central bank to transact in the market more effectively. the third aspect is the function of the bond market in managing the capital flows. emerging market economies when they are successful tend to attract capital inflow very quickly, and in very large quantity. unfortunately, if things turn bad, the outflow of capital can also be equally quick and in as large a quantity. how can one better manage this volatile capital flow? to some extent, i think the risks can be mitigated with a well functioning bond market. if we can make it function as a temporary reservoir to store the incoming water, and more slowly releasing it to the various users of fund within the country, at the right pace for absorption - if the market selection process can be made such that only the projects with really viable, economic prospects are granted the fund - and, if the foreign owners of fund can be persuaded to hold the instruments denominated in borrowers ’ own currency, thereby shifting the position on the foreign exchange risks from the borrowers to the investors, then the bond market can be a safer channel for capital flows than the commercial banks. at this point