sector ’ s loans and assessing ability of debt repayment of the private sectors, especially the middle and the low income groups. second, on exchange rate policy, the main challenge is that the thai baht has been on an appreciating trend due to various factors, including capital inflows surge into the region, structural change in the world economy, growth differential between advanced and emerging economies as well as accommodative monetary policy in advanced economies. generally, allowing the exchange rate to be determined by the market can serve as an automatic stabilizer in the short - term and as an important price signal and catalyst for structural change in the long term. so, as the first line of defense, the exchange rate should be determined by market mechanism and from both the market and our own assessment, the thai baht still remains broadly in line with economic fundamentals. however, the bot stands ready to use policy instruments at our disposal to prevent and manage dysfunctional market conditions, excessive speculation or exchange rate overshooting. it should be noted also that, the baht appreciation at this juncture provides an opportunity for businesses to upgrade their technology and productivity. given scarce labor and increasing wages, productions in thailand need to shift from labor intensive to a more capital intensive industries and thus more import of capital goods and machinery are made cheaper during this investment up - cycle. third, on capital flows management. in october 2012, the bank of thailand launched the capital account liberalisation master plan. this master plan aims to facilitate thai companies to diversify their investments abroad, especially in neighboring countries. this would encourage private companies to operate their businesses more efficiently by expanding their markets and production bases, which in turn will help strengthen their competitiveness. facilitating outflows also helps capital flows to be more balanced. the bank of thailand, for instance, has removed the limit for thai individuals ’ outward direct investment, raised the limit per investor, and eased regulations for transfers of foreign currencies to facilitate investment in foreign securities. recent surge of capital inflows to the region is likely to continue as long as advanced countries continue their extra - loose monetary policies and as long as the prospect of this region remains much more positive than advanced economies. there is no one - size - fits - all measure to deal with impact of short term capital inflows on the economy. the bank of thailand thus utilizes policy combinations, namely : allowing exchange rate adjustment as a first buffer ; liberalising outward investments by residents ; exercising

wide support to deal with procyclicality problems includes the followings. first, there is a proposal on the build - up of capital buffer in the good times to be run down in the bad times and to prevent excessive credit growth. second, as being discussed with accounting standard setters, provisioning should be linked with expected loss rather than incurred loss, which is the prevailing practice. finally, the primarily simple and transparent “ leverage ratio ” should be applied as a complement to risk - based capital requirement under basel ii. implementation of many such policies is still subjected to significant work on calibration as well as qualitative issues such as consistency with risk - sensitive capital framework, and international level - playing field. such problems magnify in the case of emerging markets, which face constraint on data and institutional capacity. moreover, much of the work done on calibration would tend to serve the need of irb rather than sa banks that are the core in emerging market. thus, the reform agenda will need to pay proper attention to capacity building of banks and regulators. nevertheless, there are warranted rationales for its use in financial stability tool kit in an appropriate manner, given national context. in terms of measures to address systemic risk, the proposed ideas include systemic capital charge, capital for otc derivatives, and cross - border bank resolution framework. again, the same emerging market issue and dimension should be properly recognized. turning to the key microprudential policy framework currently being discussed at the international forums to ensure individual financial institution ’ s stability, the bcbs has proposed a package to address previous shortcomings in risk - based supervision as follows. for pillar i, regulatory capital for securitisation exposure is enhanced. in addition, the quality and transparency of capital is strengthened especially tier i capital, which would consist mainly of common equity and retained earnings. for pillar ii, supplemental guidelines are issued by requiring banks to manage firm - wide, concentration and reputational risks more effectively. valuation and stress - testing practices are also improved. moreover, compensation and bonus scheme should be aligned with longterm risk taking behaviour and performance. turning to pillar iii, focus is given to disclosure requirements to reduce uncertainties associating with securitization exposures. additional requirements include, for example, sponsorship of off - balance sheet vehicles, and resecuritisation exposures. on top of these, a new regulation on liquidity risk management, namely the so - called liquid