and the application of conservative conditions whenever refinanced credits are negotiated, are all integral elements of the general lending standards that banks should observe and keep up to date as part of their credit risk management policy. moreover, rapid credit growth usually has a negative impact on lending standards which, down the road, translates into increased needs for provisions, as non - performing loans start to pop up. we saw this clearly, and on a large scale, during the lastest banking crisis in spain1 and elsewhere, and it is our responsibility to remain vigilant to prevent this from recurring with the appropriate supervisory tools. regarding collateral valuation, it cannot be ignored that provisions apply to the uncollateralised part of each loan. consequently, guarantees pledged to each loan represent a central element in the new approach for measuring credit risk. to fulfill their role, guarantees have to be effective, that is to say, they need to be validated as a mitigant of credit risk. for this to be true they must subject to strict, rigorous and verifiable valuation criteria. to facilitate this last point, banks should have procedures for the valuation of the collateral with updated information based on revised appraisals adapted to changes in the macroeconomic situation and reliable analysis of trends of market prices, particularly for real estate collateral. finally, estimates of credit losses and provisions should rely on credit risk models developed on a sufficiently quantitative basis where prudence should be reinforced. in any case, see g. jimenez and j. saurina : “ credit cycles, credit risk, and prudential regulation ”, international journal of central banking, 2006. 4 / 7 estimates should be based on credible assumptions that are sufficiently justified and consistent over time. the methodology used must be readily understandable and the results intuitive. also, consistency should be an objective. banks should establish procedures for periodically testing the reliability and consistency of the results obtained. the periodic testing of the calculation of provisions should be done regularly through, for example, back - testing the estimated credit losses with those actually observed in finalised credit operations. for a successful implementation of the new loss - measure approach, banks ’ forecasting capacity in respect of economic downturns and anticipation of significant deterioration of both credit standards and credit risk are key. as such, banks should strive to apply and use the appropriate procedures to ensure the timely determination of future significant increases in credit risk and, more generally, they should be able to properly adjust their models and predictions to

of the financial system. supervisors need to encourage financial institutions to operate their businesses in a safe and sound manner as new delivery channels or services could exacerbate some of the same risks inherent in traditional banking. however, the prudential regulatory framework has to be congruent to the evolution of the e - banking business. therefore, we need to strike a balance between the need to maintain the stability of the financial system and to foster developments, competition, and a level playing field. there are ways to overcome this challenge. - regulators need to keep up with the development of the market while being proactive in formulating the regulatory framework. in the case of thailand, bot takes an active role in meeting regularly with financial institutions and it companies to exchange views and experiences on the development of the businesses and it environment. - in the process of drafting policies, we often seek out the view from our fellow regulators to ensure that our policy are in line with market and international practices, as well as to help us anticipate problems that may arise in implementation. - the final drafts of policies are sent out for comments from key stakeholders in and outside the bank of thailand, especially the industry, to ensure that the policies are practical and not posing any undue burden on financial institutions. - we also make sure that revision of regulations and guidelines is conducted regularly to ensure that e - banking policies are keeping with demand from the financial community as well as with market innovation and international best practices. - to maintain proactive supervision, the it risk - based supervision is conducted continuously, updating each of bank's it risk profile on a regular basis and performed overall assessment in certain areas. in case of getting a report of any incidents, we have to thoroughly analyze the impact on the financial institution system and consumer. and, to prevent recurrence of such incidents, we may urgently issue notification to financial institutions to provide preventive, detective and corrective control measures in self and customer protections. with the rapid development in technology, in the near future, apart from the known internet banking, we will see more of the " non - traditional " banking products. the providers of these services will not only be limited to banks, but also non - banks. of course, the extent to which a non - bank provider can offer these new products and services depends on the rules and regulations of each country. to promote a fair competition between service providers that are banks and non - banks is a challenge for the authorities. bot