associated with corporate rehabilitation and realignment such as m & a finance and dip finance and of fund demand from emerging companies that challenge new areas. moreover, needs for asset management mainly by elderly people are expected to diversify and increase. changes in business models for globally active major financial institutions third, business models of globally active major financial institutions might change. specifically, the originate - to - distribute business model that had been actively used prior to the crisis will relatively decrease in number and the proportion of commercial banking business that put more emphasis on the relationship with customers is likely to increase : that is called “ back to basics. ” moreover, as business regulations such as the volcker rule will be implemented and regulation and supervision will be reviewed in order to restrain “ too - big - tofail, ” it is likely that the moves toward mere scale expansion and toward excessive risk - taking will be restrained. in terms of funding, as awareness about liquidity risk heightened considerably through the experience of the financial crisis, more emphasis would be put on retail deposits, which have more stability than short - term wholesale funding such as repo transactions. such changes in business models of globally active major financial institutions could have an impact on the business models and the competitiveness of japanese financial institutions. b. future of japan ’ s financial system : macro perspective i will next touch on how japan ’ s financial system should be in the future from a macro perspective, namely, a perspective of financial system structure. needless to say again, japan ’ s financial system has long been characterized by financial intermediation centering on banks. in this situation, from a perspective of improving the functioning and stability of the financial system, many have argued as follows. it is desirable to have not only bank - based financial intermediation but also financial intermediation through the capital market, inclusive of the so - called market - based financial intermediation. to that end, it will be necessary to increase the supply of risk money and eventually enhance the diversification of households ’ asset investment. in fact, many policy measures have been taken to bolster such moves, including enhancement in market infrastructure, improvement in market transparency, and investor protection. if we revisit the discussions based on the experience of the recent crisis, it can be summarized as follows. first, the complementarity of functioning between banks and capital market is important. while the functioning of corporate bond and cp markets declined significantly in japan during the crisis, bank lending substituted the financial

tarisa watanagase : the road ahead for central banks – meeting new challenges to financial stability luncheon talk by dr tarisa watanagase, governor of the bank of thailand, at the foreign correspondents club of thailand, bangkok, 20 july 2010. * * * distinguished fcct members and guests, ladies and gentlemen, first of all, i would like to thank the fcct board for inviting me to deliver this luncheon talk as part of the club ’ s newly established speaker ’ s lunch series. to this, i am honored as well as delighted to be back. it was exactly two years ago when i was here for the club ’ s dinner program in july 2008, and let me tell you that i very much enjoyed our q & a session then. i certainly look forward to participating in such a lively exchange again this afternoon. the topic of my talk today is “ the road ahead for central banks : meeting new challenges to financial stability, ” in which i will share with you my views on the roles of central banks regarding the maintenance of financial stability, with particular reference to those at the bank of thailand during the past few years and going forward. this talk will be divided into three parts. the first part will be about the changing global view on financial stability policies as a result of the recent global financial crisis. the second part will be a summary of what the bank of thailand has done with regard to the maintenance of thailand ’ s financial stability. the final part will be a discussion about the challenges ahead. ladies and gentlemen, since my previous fcct address, things have changed dramatically. two years ago, the main policy issue surrounding the economy was the sharp acceleration in inflation due to drastic increases in oil prices. two months after my talk, starting with the fall of lehman brothers, the world went into the deepest recession never seen since the great depression. thailand was not spared, as the thai economy last year experienced negative growth for the first time since the 1997 crisis. in tandem with the slowdown of the global economy, oil prices collapsed and inflation was no longer an issue. over the past two years, policy focus would be on how to restore the stability of the global and individual country ’ s financial systems and how to prevent such a systemic crisis from happening in the future. in other words, the spotlight has turned from price stability to financial system stability, or in short, financial stability. 1 the global financial crisis has a significant impact on central banks ’ thinking of