real house price in the u. s. increased by more than 40 percent between 2002 and 2006, while u. s. loan growth, particularly mortgage loans, accelerated during the same period. these signs were also present in east asia before the 1997 crisis. in the current crisis, the securitization boom and the easing of monetary policy in the us helped fund the loan growth, while in the case of the asian financial crisis, it was the large capital inflows in the form of direct borrowing that funded the credit boom. in both cases, however, poor underwriting standard by banks was an important common contributing factor. looking back, the asian financial crisis has been an important turning point for policymakers in the region, as the lessons learned from the crisis had led to many important policy reform initiatives, all of which aimed at strengthening the robustness and the risk management discipline of the domestic financial systems, and this brings me to my second point. in the case of thailand, after having restored financial stability in the early 2000s, financial reform became a top priority, with emphasis on instilling prudent regulations and strong risk management. we adopted a macro - prudential approach in the early 2000s, in recognition of the systemic linkages between the financial system and the increasingly opened macroeconomic conditions ; utilizing our natural institutional advantage as we continue to oversee both monetary policy and financial institutions supervision. hence, from 2003 to 2006, a series of macro - prudential measures were introduced, aiming at restraining then the rapid growth of credit, especially credit card loans and mortgage loans. the preventive measures that were introduced included placing limits on the loan - to - value ratio for luxury mortgage, raising minimum repayment requirements for credit cards and personal loans, and strengthening npl provisions by fair valuation standards of ias39. looking back, these measures have been useful in curtailing excessive leverage and household indebtedness, thus helping to maintain stability in our domestic financial system. risk - based supervision was a key driving force to strengthen risk management practices of our financial institutions. financial institutions and central bank laws have been overhauled to keep up with the increased complexity of the financial system. the new financial institutions business act, enacted last august, empowers the bank of thailand with the authority to regulate banks and non - banks under a consolidated supervision regime. furthermore, risk management and governance practices of financial institutions have also been strengthened. board of directors are now held accountable by law for setting the strategic and

prasarn trairatvorakul : navigating through volatility with long - term focus speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the association of international banks ( aib ) dinner speaker series, bangkok, 29 july 2013. * * * excellencies, distinguished guests, ladies and gentlemen, i would like to thank the association of international banks for inviting me to give a talk this evening. it is my honor and pleasure to be here for the prominent institution that has its presence in thailand since 1996. the association ’ s work and efforts have contributed significantly towards the strength of the thai banking system as well as economic prosperity here in this country. for this special evening, i would like to share with you my views on the recent economic and financial challenges, as well as the bank of thailand ’ s role in safeguarding economic and financial stability. navigating through volatility over the past few years, we have gone through many economic surprises. last year alone the thai economy had to face several challenges, both inside and outside thailand – recovering from the devastating floods and coping with fragile global economy. and just a few months ago we only just started talking about a pick - up in global growth, driven mainly by robust demand in emerging markets. today, circumstances have changed, and we are facing with unexpected slowdown in emerging markets as well as the prospect of fed qe tapering. as far as global economic environment is concerned, i think we are going to see a lot more surprises. the world, in my view, is now obsessed with just a few things. i would like to highlight them in turn. first, the prospect of qe tapering is having wide implications for financial markets. we have already seen a sell - off of emerging market debts and equities, and a reversal of foreign capital flows that had rushed into the region earlier this year. with uncertainty in the amount of global liquidity provided by major central banks like the fed, we will likely see more volatile capital flows, exchange rate and commodity prices going forward. second, financial markets are watching closely abe ’ s plan to revive the japanese economy. its effectiveness, especially of its third - arrowed plan of structural reform, will be significant for global outlook and the degree of risk aversion in general. if the third arrow has failed before it even properly began, the economic momentum running by the previous arrows – monetary and fiscal