bandid nijathaworn : east asian financial markets – some thoughts on the way forward speech by mr bandid nijathaworn, deputy governor of the bank of thailand, at a high level panel on “ east asian financial markets : the next frontier ” seminar organised by the world bank and hong kong monetary authority, hong kong, 22 june 2006. * * * thank you mr. chairman, first, let me thank the world bank and the hong kong monetary authority for the invitation. it is always a pleasure to be here in hong kong, and i should also congratulate the organizer for putting up what looks like another important and useful seminar. my task today is to speak on east asian financial markets. in the recent years, i think there is no disagreement that the economies and the financial markets in east asia have gone through an important phase of transformation and growth. so, it is ideal that we do take stock and think ahead on how things should best evolve going forward, so that the region ’ s economic potentials would be best leveraged, and to see what role can the region ’ s financial markets play. given the limitations of time, i want to use this opportunity to make just two points. the first is the issues that are currently being discussed in the region on the areas that we need to do more in developing financial markets in east asia. and the second is my view on the role that policy can play in supporting future developments. but to set the context on what i am going to say, given that financial markets cannot be discussed separately from the real economies, i want to begin with a few observations on the current macro and finance trends in the region. in the context of key macro and finance trends in the region, i think at least four developments stand out as the current defining themes. first is the region ’ s much improved economic resilience and fundamentals. these qualities now offer the region a prospect of continued strong long - term growth and potentials. at the same time, the region ’ s financial prowess – in terms of high saving rates, current account surpluses, and strong international reserves – has continued to improve, and thereby enhances the region ’ s financial influence in the global economy. next is the increased interdependency. with the growth in economic activities, we are also seeing more economic interdependency within the region, especially in trade, and especially in trade between china and the rest of the region. intra

push forward, in our view, is that of crossborder supervisory coordination, particularly better information sharing between home - host supervisors should be warranted. this is particularly important as the current crisis shows that there is a need for home supervisor of global financial conglomerate and banks to recognizing that global bank ’ s local operations may be systemically important for the host economies. in closing, i would like to share with you what i believe are the key changes in our financial landscape, resulting from this global crisis. first, bank business model would likely become more conservative, placing less reliance on wholesale financing and use of leverage, while focusing more on risk management and higher liquidity buffer. consumers themselves would be more risk averse and prefer to stick with simple transactions and products. as mentioned already, regulatory framework would be strengthened, especially the use of macroprudential oversight that focuses on system - wide stability. as such, closer supervision of systemically important financial institutions, including non - banks, would be required. finally, the microprudential oversight would also be strengthened to rectify previously identified shortcomings, particularly the basel ii framework, corporate governance, and incentive misalignment. though it looks as if we could be in the process of creating a “ new world order ”, given what we have done so far in strengthening our financial sector resilience, i believe that this transition would be a smooth one and add further strength to our financial system. needless to say, a strong financial system is the backbone of sustainable economic growth in the longterm. thank you for your attention.