##ity outflows resulting from public withdrawals of smaller below - market - rate insured deposits led first to an earnings squeeze and an associated loss of capital and then to a high risk investment strategy that led to failure after failure. depositors acquiring the new larger denomination insured deposits were aware of the plight of the thrifts but unconcerned about the risk because the principal amount of their $ 100, 000 deposits was fully insured by the united states government. in this way, the 1980 increase in the deposit insurance cap to $ 100, 000 exacerbated the fundamental thrift problem associated with concentration on long - term assets in a high and rising interest rate environment. indeed, it significantly increased the taxpayer cost of the bail out of the bankrupt thrift deposit insurance fund. not withstanding this problematic episode, it is clear that deposit insurance has played a key - - at times even critical - - role in achieving the stability in banking and financial markets that has characterized the past almost seventy years. deposit insurance, combined with other components of our banking safety net ( the federal reserve's discount window and payment system guarantees ) has meant that periods of financial stress are no longer characterized by depositor runs on banks and thrifts. quite the opposite : asset holders now seek out deposits - - both insured and uninsured - - as safe havens when they have strong doubts about other financial assets. looking beyond the contribution of deposit insurance to overall financial stability, we should not minimize the security it has brought to millions of households and small businesses. deposit insurance has provided a safe and secure place for those households and small businesses with relatively modest amounts of financial assets to hold their transaction and other balances. these benefits of deposit insurance, as significant as they are, have not come without cost. the very same process that has ended deposit runs has made insured depositors - - as in the 1980s with insolvent, risky thrifts - - largely indifferent to the risks taken by their depository institutions because their funds are not at risk if their institution is unable to meet its obligations. as a result, the market discipline to control risks that insured depositors would otherwise have imposed on banks and thrifts has been weakened. relieved of that discipline, banks and thrifts naturally feel less inhibited from taking on more risk than they would otherwise assume. no other type of private financial institution is able to attract funds from the public without regard to the risk it takes

the debt - overhang problem. to go forward we first need to unshackle ourselves. the crawling pace of debt resolution is tying down the economy. if we could not resolve the debt problem in a timely manner and adopt new work practices, it will be next to impossible to compete successfully in the world market. the bank of thailand and the government are alert to this challenge. and the government has already initiated the process of overhaul. one notable attempt at debt restructuring is the establishment of the thai asset management corporation ( tamc ). the entity was set up to reduce distressed assets in the banking system through centralization of npls'management. this should allow banks to resume their normal function and new lending. new lending is needed to provide the working capital to support corporate restructuring as well as business expansion. this way, our energy will be channeled toward more productive enterprises. and, with the authority to liquidate and rehabilitate businesses through swift legal procedures, the tamc is unique in its unprecedented power. next, given that a substantial share of distressed assets remains outside the purview of the tamc, i see the need to expedite the process of corporate debt restructuring which requires a speedy passage of the reformed bankruptcy law. this action will be testimony to the sincere effort that we in the authorities can make for the benefit of our future generations. insofar as the banking sector is concerned, the bank of thailand regards better enforcement of the banking and financial institution regulations as a priority. this is an area that the bank of thailand takes leadership role to strengthen the soundness and efficiency of the financial institutions. our leadership must lead to an outcome which makes practical sense, measures up to international best practices, and must be market - oriented. on this front, we have been actively involved in the consultation process for the new basel capital accord, which will provide a more comprehensive and sensitive approach to addressing risks through the use of minimum capital requirements, supervisory reviews and market discipline. the second agenda of the banking sector reform is enhancing our risk management capacity. toward this end, our supervision group has moved from regulation and transaction - testing toward risk - based supervision. we realize that good rules alone do not automatically translate into honorable practices. therefore, we consider an upright supervisory role as a sine qua non to ensure honest banking practices. the new supervisory practices can be considered a milestone in this area. our aim is to nudge thai banks to change their business practices. currently, they are working