##cyclicality in the financial system, and that provides momentum for reform to strengthen financial infrastructure and governance. thailand, like most emerging markets, has also been struggling with this issue. and i want share with you some of the policies that we have pursued in response to the challenge. it is a long journey, and it is the journey that we are making. on the issue of reducing risk from procyclicality of the financial sector, prevent excessive lending, and ensure adequate capital. in our view, the key issue here is to reduce a possible large swing in the availability and the price of credit stemming from the tendency of banks to underestimate risks in good times, and then to overestimate them in bad times. on this, our approach has been to ensure that banks ’ capital and riskmanagement policy is forward - looking by using a combination of three instruments. the first is stress testing to ensure that bank ’ s own internal process for assessing the adequacy of capital and overall risk management is alert to possible key risks. thai banks have begun conducting stress tests as part of the supervisory process since early last year when we first underwent the fsap assessment. from our experience, we find stress testing to be a useful and effective instrument for helping banks in formulating strategy for capital and risk management in a forward - looking manner. also importantly, it provides a formal process for a two - way dialogue between banks and supervisors on risk management and on other financial stability issues. the second instrument is the fair value accounting rules or ias 39, which we have adopted for non - performing loans and for structured products. in our view, these rules can help strengthen market discipline over bank lending and investment. and because fair valuation involves marking to market, its adoption also helps make provisioning for asset impairment more forward - looking. the third instrument is prudential policy to limit excessive procyclicality. in the past five years, when capital inflows were strong, we have put in place prudential measures to stem the build - up of excessive credit growth on consumer spending and on speculative housing demand. these include measures on credit card approval and maximum loan - to - value ratio for luxury housing. as i noted earlier, in the context of monetary policy framework, combining inflation targeting with macroprudential measure offers a pragmatic approach to deal with concerns on financial stability and asset prices without compromising the discipline of monetary policy with respect to its primary inflation

prasarn trairatvorakul : trust as a pillar of the industry keynote speech by dr prasarn trairatvorakul, governor of the bank of thailand, at the asian banker summit 2012 “ trust as a pillar of the industry ”, bangkok, 26 april 2012. * * * ladies and gentlemen, it is an honor to join all of you today, and to welcome leaders of asian banking community to bangkok. the theme of this year conference, “ trust as a pillar of the industry ”, highlights the fact that the global financial market stands at an important cross - road. the topic of trust inevitably arises after a crisis. the cross - road is about how to reform regulation, that is, how to re - regulate. this is the juncture which we have reached today, with reforms proposals such as those by the basel committee, the financial stability board, or dodd - frank act in the us. all these are attempts to rebuild trust and confidence. it is well known that trust is the cornerstone of the financial industry. but it should also be added that, trust alone is not enough. we also need to have a good dose of healthy skepticism. the reason for this is that we must avoid, on the one hand, overly trusting market mechanism, or on the other hand, overly trusting in regulation. this is because of the rapid changes in the financial system and how risk is transmitted. the last crisis showed how financial innovation and complexity of bank business model overtook risk management and regulation in the west. in asia, economic and financial liberalization is a powerful driving force that is reshaping our financial landscape today. this could potentially open up the gap between risk and our ability to manage it. so what should be our strategy to build trust, but avoid being blinded by our sense of security? the strategy to deal with this is to have trust that is counter balanced by well informed debate on risk management, supervision, and good governance. so, we need a good dose of well - informed skepticism, as well as financially literate public. let me turn to the progress on the global efforts to reform regulation. where are we today? in all of these reforms – be they basel or fsb – the questions we ask are these. have we done enough to rebuild “ trust ” and secure financial soundness? is the international standard right for the local context? are there unintended consequences, i. e. the bad side - effects? getting it right