bandid nijathaworn : quantitative models and tools for good risk management opening address by dr bandid nijathaworn, deputy governor of the bank of thailand, at the 2nd seacen - occ advanced seminar on quantitative techniques for macro surveillance and determining resilience of the banking sector, bangkok, 3 september 2007. * * * let me begin by extending a warm welcome to all of you to bangkok, and to the second seacen - occ advanced seminar on quantitative techniques for macro surveillance and determining resilience of the banking sector. the bank of thailand is pleased to be hosting this seminar, jointly with the us office of the comptroller of the currency and the seacen centre. today ’ s seminar reflects another important effort in forging a closer cooperation and network between us regulators and the central banks and regulators of the southeast asian region. such a close tie is most valuable for it is a platform that helps facilitate supervisory coordination that is necessary for an efficient home - host relationship, as well as for exchanging views on important market developments and supervisory issues such as on financial innovation, on the implementation of basel ii, and on accounting standards. going forward, such a close tie will be even more valuable, because an important component of a good macro - surveillance process is an open and timely dialogue, and exchange of views among regulators from different jurisdictions. with a deepening process of financial globalisation that we are now seeing, supervisors and central banks are faced with increased challenges to analyse and manage risks, especially in the context of more complex interlinks between financial institutions and financial markets, as well as between domestic and the global economies. in such an environment, the risk management ability of financial firms and supervisors is important and rests crucially on the ability to assess quantitatively and in a forward - looking manner, the possible impact of each risk scenario on the economy and its financial sector. in this light, a sound and practical approach to integrate the quantitative assessment into financial stability and into risk - based supervision is most crucial, as it will allow the potential key risk affecting the financial sector to be identified, to be assessed, and to be ranked in order of importance. through this, the approach will help focus policy dialogue and facilitate communication between all the key stakeholders, namely – the supervised financial institutions, the home and host supervisors, other related supervisory agencies especially in the case of complex financial conglomerates, and between the monetary authority and the finance ministry. in moving forward, it

of this year, domestic demand slowed down markedly. at the same time, domestic credit growth was still quite high, stock prices continued to advance, and activity in the housing market remained brisk. moreover, portfolio capital inflows continued and the baht was appreciating. this presented a dilemma and was an example of the difficulties posed by policy spillovers. against the backdrop of weak global demand, we cut the policy interest rate. we contemplated the use of certain prudential measures, including those on capital flows, in order to complement domestic monetary policy as well as offset some of the impact of capital inflows on domestic financial conditions. but since the qe tapering talk began in earnest in may, the global financial environment changed dramatically, and with it the nature of the policy trade - offs. the communication by the federal reserve about possible tapering of its bond purchases was a key turning point for global financial markets. financial conditions suddenly tightened in response. long - term interest rates rose in the us and emerging market yields increased even more, reflecting a reversal in risk appetite. the prospect of fed tapering became a key consideration for monetary policy in emerging market countries. in most countries monetary policy remained tight in order to lean against excessive currency depreciation ; a few countries raised their policy rates in an attempt to stem capital outflows. for some countries, as economic activity softened and inflation fell, monetary policy may have ended up being tighter than intended as a result of tensions caused by policy spillovers. at this juncture, the key question is how to design or adjust policy frameworks to cope better with global interconnectedness while preserving monetary policy independence. i hope the conference will help shed further light on this. in doing so, we have to be mindful that global liquidity conditions will continue to largely depend on the macroeconomic conditions of the reserve - issuing countries. currently the us dollar dominates the international reserve system as a safe asset. the continuation of this role rests on some basic requirements. a reserve - issuing country has to illustrate a good track record of prudent macroeconomic policy. and as recent events have reminded us, there is a large fiscal element to this. one cannot separate the status of a reserve currency from the solvency of the sovereign. the use of the us dollar as an international store of value and medium of exchange very much depends on the continued credibility of the us treasury in honoring its debt obligations. in terms of monetary policy, it is understand