bank weaknesses. they cannot fail in their oversight and risk managerial duties, just as supervisors cannot fail in their on - site and off - site supervision. in this respect, i am a strong believer that good governance is the corner stone of a stable financial sector. we must create a banking community that does not tolerate imprudent business practices and lax systems and control. these are the sins of the past. thailand, for instance, is carefully fostering a new business culture with the right values. on our part, the bank of thailand has since march 2002 announced guidelines supporting the practice of good corporate governance of banks'board and management to ensure that they look after the interests of their stakeholders in an effective manner. these rules are not ground - breaking ; they are just simple common sense. but we need to communicate clearly to the private sector what our expectations are and what the consequences are if the efforts fail. ladies and gentlemen, the cost of financial restructuring in thailand was, after all, too enormous in figures and too painful in real terms to allow us to continue with our old way. in addition to changing the corporate culture, we are also amending a few key laws to solidify the foundation of our financial infrastructure. the new financial institutions businesses act will empower banking authorities with the necessary power to supervise financial institutions on a consolidated basis and to take appropriate actions against weak banks, with the provisions of prompt corrective actions. the deposit insurance act will support a deposit insurance system to limit the loss of public money and reduce the moral hazard inherent in the current guarantee system. we must ensure that when a bank failure does occur, despite all preventive measures and utmost efforts to prevent it, depositors are taken care of fairly, and the bank's shareholders accept their due share of burdens. moreover, we have drafted the financial sector master plan to foster an efficient, stable, and competitive financial sector, guiding the development of the financial sector over the medium term. all these initiatives were undertaken with the objective of providing the right framework for effective supervision in order to develop a sound and strong banking sector. in this regard, i trust that the discussions in the next two and a half days will be very constructive, providing more insights on these issues, as well as other controversial debates - such as the role of governments and lender of last resort. allow me to say a few words on the substantial progress made by various international bodies in crisis prevention. the imf has taken a leading role, revamp

it to the parliament. ladies and gentlemen, now let me turn to the issues that directly impact the banking industry : what might be the implications for financial institutions as a result of the measures discussed earlier, and what are the challenges ahead for the banking sector? i would like to point out a few : first, in the new financial landscape following the implementation of the master plan, we anticipate a structural change in the banking sector with more industry consolidation and emergence of financial conglomerates, embraced by the “ one presence ” principle. such processes should lead to larger size and falling number of financial institutions. although not a sure ticket to success, size will allow the working of economies of scale and scope - to eliminate redundancies in administrative and operational functions, reduce costs from more diversified portfolio of clients and enhance income from provision of wider range of services. for the first time ever in the thai banking history, banks will have the opportunity to do all these and grow through consolidation and / or forming a financial group. up until now cost cutting and income enhancement, for example, were possible only through reorganization and re - engineering within the same organization. of course, there were cases of mergers in the history, but they were mainly out of necessity to solve the problem of some weak banks, not as a calculated move for growth. therefore, in my opinion, the first major challenge in the next couple of years for banks is to reap the benefits from such an opportunity offered by the master plan. in doing so, a bank ’ s board and senior management must give its full attention and be fully committed to articulating a strategic plan, successfully integrating their operations, streamlining various business processes, as well as finding their niche markets or areas of comparative advantage. second, banks must prepare themselves for the new basel accord. most banks in thailand will start with the standardized approach in the calculation of their regulatory capital, because of the reasons i talked about earlier. adopting the standardized approach does not require much preparation, since it is quite similar to the existing accord, with only some differences in the risk weights of some assets. however, if banks stay on the standardized approach for too long, they will not be as risk sensitive as those which adopt the irb approach, resulting in higher risk and higher need for capital, which means that they will not be able to compete well as internationally active banks. therefore, the ultimate goal for those who wish to compete internationally would be to move to the irb approach, after