policy, as well as submit call reports on the calculation of the volume of trading book transactions and the calculation of the capital charge against market risk. ladies and gentlemen, another factor which will have crucial implications for the banking sector is the basel ii implementation. with the recent release of the basel ii framework, it is inevitable that we get ourselves ready for this international standard of capital adequacy. we all would agree that the new capital accord is for the betterment of banking system soundness for it signifies a move away from the one - size - fits - all approach to credit risk assessment in accommodation of evolving more sophisticated risk management of modern banking. specifically, under the new accord, it provides more comprehensive and risk sensitive approach to calculate regulatory capital, augmented by supervisory review process of pillar ii and market discipline enforcement of pillar iii. despite the novel complexity of capital calculation under pillar i, if a bank adopts the standardized approach, its calculated regulatory capital is only a proxy of the actual risks. i suspect that standardized approach is the one that most banks in emerging markets will adopt before they can meet the preconditions of irb, or the internal - rating - based approach, especially in the areas of data quality and risk management practices. therefore, only through proper pillar ii supervisory review can we understand the true risk profile of banks, so that capital requirement is set in line with the risks assumed by banks. to carry out this task, the authorities need to have the right prudential rules in place, as well as the supervisory capability and capacity. at the bank of thailand, we are developing prudential standards and risk - focused on - and off - site examination practices and manuals so that each supervisor can work on a common structured approach to risk analysis. moreover, a lot of resources have gone into supervisory training to equip our supervisors with the necessary tools and build up their sound judgment for the implementation. in parallel, the bank of thailand has proposed the new financial institutions businesses law to the parliament to give us the necessary legal basis to implement both effective banking supervision and basel ii. to foster pillar iii market discipline enforcement, the authorities are working on an appropriate safety net to replace the blanket guarantee that undermines the functioning of the pillar iii. it ’ s obvious that without lifting the blanket guarantee, market discipline will not work no matter how much disclosure is required. at present, the ministry of finance is in the process of reviewing the draft legislation on deposit insurance agency before submitting

maturities. moving into 2008, concerns about potential spillovers from slower u. s. growth and weaknesses in the financial system weighed increasingly on advanced economy equity markets. as the step - down in growth of gross domestic product ( gdp ) in a number of advanced economies became apparent, we also began to see reduced growth and prospects for growth in many emerging market economies, and stock markets in emerging economies declined sharply. throughout the world, the challenges posed by weakening economic activity were further complicated by mounting inflationary pressures as food and energy prices soared. by now i believe it has become clear that the initial assessment that the united states had decoupled from the rest of the world was incorrect, and that, in fact, the global economy remains closely connected by both trade and financial linkages. global trade linkages trade linkages among countries are, broadly speaking, relatively well understood : one country's imports are another's exports. that is, of course, an oversimplification, but it captures a key element of global trade linkages, that exports to other countries can provide a direct and powerful stimulus to the domestic economy. the importance and benefits of free trade are widely accepted, although agreement on how to allocate these benefits is not always easy to come by. when domestic markets for goods and services are unrestricted and open to sellers worldwide and when supply adjusts efficiently to meet changes in demand, costs to consumers are minimized. the recent sharp increases in global food prices have underscored the importance of reducing barriers to trade in agricultural products. reducing such barriers was one of the key subjects of the latest set of talks in the doha round, and i am disheartened that this round of talks collapsed. given the urgent need to expand the global food supply to meet burgeoning world demand, it is particularly unfortunate that these negotiations were unable to make progress. global financial linkages today's global financial linkages are quite complex and subtle. the nature and extent of these financial linkages are reflected in a range of characteristics, which include not only the net international investment positions but also the sizes of gross cross - border claims and liabilities positions, the composition of these positions by asset type, and the returns on the underlying assets. a quick review of these characteristics of u. s. financial linkages to the world will help resolve some puzzles in international finance that might otherwise suggest that the united states faces a different “ reality ” than other countries. first, investments made