will be in full compliance with basel iii capital standards which include a countercyclical capital buffer that varies with credit cycles and a leverage ratio that limits excessive buildups of leverage. the liquidity part is new and aims to strengthen banks ’ management of liquidity risk. a stress - test - based liquidity coverage ratio and a longer - term net stable funding ratio will be mandated in 2015 and 2018, respectively. the final part of basel iii deals with supervision of global banks whose failure could trigger the meltdown of the global financial system. identified global systemically important banks will be subject to an additional capital surcharge above basel iii capital requirement. this extra loss absorption capacity is to be met with common equity and will be phased - in between 2016 and 2018. as another example, many of you have probably heard of the recently passed volcker rule, named after another former fed chairman paul volcker. the volcker rule can be seen as a watered down version of the glass - steagall act. recognizing that it is difficult to separate investment banks and commercial banks entirely, the volcker rule prohibits commercial banks from short - term proprietary trading of securities, derivatives, futures, and options on these instruments. the goal is that eliminating these risky practices will make banks safer and at the same time force them to refocus on core banking businesses which in turn should benefit consumers. basel iii and the volcker rule are just two examples of re - regulation. there are several others, notably the u. s. dodd - frank act, the otc derivatives markets reform, and the proposed oversight and regulation of shadow banking. taken all together, these make a comprehensive set of regulatory reforms that will busy both regulators and financial institutions over the next several years. i would like to stress however that, for financial institutions, the compliance with the new regulations is not a one - way process, but a two - way one that you can help shape through industry consultation and collaboration with regulators. the challenges for country regulators are whether and when to adopt certain parts of international standards that may be irrelevant, too stringent, or lead to new risks for the domestic industry. by working together, we can ensure not only the smooth adoption of international standards, but also that our financial system will not be burdened by unnecessary rules and unintended consequences. bis central bankers ’ speeches the third direction is the emerging role of macroprudential regulation. the global financial crisis has shown that traditional or microprudential regulation

imbalances when making monetary policy decisions, represented only a small minority before the crisis. the global financial crisis has prompted a fundamental rethinking of central banks ’ monetary policy conduct. now it is recognized that price stability alone does not guarantee economic and financial stability and that there exists an intricate relationship between monetary policy stance and financial stability. maintaining “ too low for too long ” interest rate policy leads to excessive risk taking that can sink the economy. this risk - taking channel of monetary policy now features prominently in the mainstream economic literature. today, virtually all central banks are taking financial stability considerations seriously in their monetary policy deliberation. talk of risks to financial stability has now been mentioned frequently in several central banks ’ monetary policy statements. the takeaway from this is bis central bankers ’ speeches that once their economies get back to normal, central banks in developed economies will consciously avoid keeping the policy rate too low for too long. financial institutions must therefore prepare for a higher interest rate environment as well as volatility during the transition period. the recent emerging markets turmoil provides a fresh example of the latter, even though the current stage of qe tapering is just the tip of an iceberg of what is coming. let me move on to re - regulation. the pre - crisis mantra was to let deregulated financial markets take care of themselves. alan greenspan, the former fed chairman who pushed to have derivatives remain unregulated, expressed that he was in “ shocked disbelief ” to see what happened. in addition, a number of observers, including nobel prize winning economist joseph stiglitz, believe that the repeal of the glass - steagall act in 1999, which allowed commercial banks to engage in investment banking activities, was among the major factors behind the crisis. by re - regulation, i don ’ t mean the return to tight control by regulators, but rather “ smarter ” regulation that focuses on systemic risks. let me show my point with some examples. as a regulator, i would not be doing my job if i did not talk about basel iii. to avoid going overboard on its massive details, i will highlight just a few of its key features. in a nutshell, there are three parts to basel iii : capital requirement, liquidity risk management, and supervision of global systemically important financial institutions. of the three, the capital part is in the most advanced stage with national implementation started last year in many countries including thailand. it is expected that by 2019, most countries