market stress or breakdown. the bot supports the iasb ’ s solution on reclassification of financial assets in “ rare circumstance ” as it offers more discipline than currently. however, this, in turn, raises some concern on how to justify “ rare circumstance ”. again, implementation is a challenge, and no doubt you would have valuable discussions here. as for the efforts to mitigate procyclicality, various models have been proposed for the buildup of reserves and capital buffer. each model has its pros and cons. on the capital side, there are proposals to increase capital charge for securitisation product and market risk, as well as harmonising the definition of capital. we agree that the banks ’ capital buffers need to be improved both quantitatively and qualitatively. however, timing of implementation of guideline on definition of capital is quite crucial, and must be carefully considered. on the provisioning side, the current discussion is on which approach to be used as an alternative to the incurred loss model. the bank of thailand supports the principle of expected loss and dynamic provisioning, although it will be technically challenging to implement. as a regulator, we need to weight the balance on pros and cons of various models proposed as well as consider if it fits the national context. turning now to the third dimension where a balanced approach is required. the balance in relationship and responsibility of home and host regulators, and a balanced voice of emerging markets on cross - border systemic risk. this is all the more important now, as regulatory reform across countries can create regulatory gaps and un - level playing - filed, that could cause instability down the road. the principle of so - called “ insignificant host ”, as viewed from home supervisor ’ s perspective, may contradict with the agreed principle of the need for the host to oversee systemically important institutions. thus, a host supervisor should receive better information and even be included in supervisory colleges by home supervisor, if the global bank branch operations are systemically important to the host economy. colleagues, ladies and gentlemen, this is a challenging time, with new paradigm, and therefore leadership by all of us is required to ensure that we set a balanced agenda in our reforms going forward. i believe seanza forum would become all the more valuable in the future in cementing our network and friendship. thank you for your attention.

economies may also have important implications for cross - border capital flows, and financial market volatility, particularly exchange rate. the unstable differentials caused by rocky recovery paces, can give rise to large and volatile capital flows, which may have a tendency to be short - term and foot - loose. and fourth, uncertainty regarding global regulatory reform. in the immediate aftermath of the crisis, it is natural to observe the growing sentiment towards re - regulation, coupled with nationalisation of problem banks, the trend towards re - regulation has picked up momentum. therefore, it is important to ensure that we do not swing from unquestioned faith in the market to unquestioned faith in the regulation. a balanced approach is needed. just as market failures cause inefficiencies and instability, regulations too can be a two - edge sword, it could correct market failures and distortions, or it can be the cause itself if not well designed. the task of such design to avoid regulatory gap and arbitrage is all the more difficult, given the shifting financial landscape, shifting regulatory landscape as countries embark on their own reform agenda at different speed. this is why a forum such as the bis is all the more critical. the key lesson that we should learn from this and past crises is that the financial system is always vulnerable to the unobserved and unmeasured. it is not that our tenet of risk - base supervision is flawed, but rather we overestimate our ability to understand and manage such risks. in response to the calls for strengthening of regulation, g20 leaders and finance ministers have committed to strengthening of regulation. the comprehensive regulatory reform package being proposed is aimed to address the key weaknesses such as excessive leverage, under capitalisation and underestimation of risk, weakness in standards of risk management for liquidity risk for complex products and markets, and macro - prudential measures. the range of policy proposals that have been supported by g20 leaders and finance ministers, the financial stability board, the basel committee on banking supervision, and international accounting standards setters, include calls for strengthening of micro - and macro - prudential regulations that aim at capturing risks of individual institutions and risk arising from interconnectedness of the financial system, as well as more robust governance framework. the shift in policy paradigm from this crisis has been the increasing recognition of the concept of macro - prudential policy in dealing with the problem of systemic risk posed by the interconnectedness within the financial system,