prasarn trairatvorakul : financial crises and the future of global and asian banking statement by dr prasarn trairatvorakul, governor of the bank of thailand, at the sasin bangkok forum 2012 plenary session “ financial crises and the future of global and asian banking ”, bangkok, 9 july 2012. * * * theme : “ strategy for known - unknown ”. the critical success factors are 3 cs : coordination of regulators, commitment forged by inclusiveness, and communal responsibility to restore market mechanism as a pillar of governance and financial discipline. good morning. it is an honor to join all of you today. i would like to thank sasin for organizing this forum and for inviting me. over the past three decades, sasin has played an important role in grooming business and policy leaders who have been instrumental in building thailand ’ s open and competitive economy. today, we are facing another critical juncture for thailand and the global economy. this forum has brought together the world ’ s leaders in public policy, businesses, as well as academia, and is therefore a rare opportunity for dialogue on our strategy going forward. ladies and gentlemen, this brings me to the topic of my remark today. the future of banking industry at the global level and in asia is being shaped by three major forces, namely, the fragile global economy, global financial regulatory reforms, and the rise of asia which faces its own developmental challenges. these forces are interrelated and complex, no one can claim to fully understand the final outcome. so is this the new paradigm of known - unknown? that is, we know what the major drivers of change are, but we cannot forecast outcome. so the key strategic challenge is how to deal with known - unknown. for the short - term, the key priority is dealing with the fragile and volatile global economy. stability is the priority for banks and regulators. the strategic policy question is how to get the right balance between risk and return, stability and growth. weaker banks will retrench, leaving rooms for the few stronger banks to take up market share. in asia, we have seen banks from the asia - pacific, notably japanese, chinese, and australian banks moved into market space where european and u. s. banks have retracted. asean banks are also shifting strategy to play a greater role to support their conglomerates in the regional expansion. if this regional banking trend continues, what are the implications for banks, regulators, and central banks? while

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