Bank of Thailand Governor Shares Thoughts on Financial Crises and the Future of Global and Asian Banking
How to deal with the challenges facing the global and Asian banking industries? Below are the key excerpts from Bank of Thailand Governor Mr. Prasarn Trairatvorakul at the Sasin Bangkok Forum 2012 Plenary Session.
The future of banking industry at the global level and in Asia is being shaped by three major forces: the fragile global economy, global financial regulatory reforms, and the rise of Asia which faces its own developmental challenges. These forces are interrelated and complex, no one can claim to fully understand the final outcome. So is this the new paradigm of known-unknown? That is, we know what the major drivers of change are, but we cannot forecast outcome. So the key strategic challenge is howto deal with the Known-Unknown.
The key strategy for dealing with this paradigm shift of known unknown is based on 3 Cs. Coordination to deal with our interconnected financial stability. Commitment forged by inclusive global reform process. And, Communal responsibility, or governance, that can regain trust of society in market mechanism, so that we can rebuild market discipline as a key governance and pillar of the financial system.
The strategic policy question is how to get the right balance between risk and return, stability and growth. We need to recognize the need for cross-border coordination as well as flexibility in execution given emerging uncertainty. Another key issue going forward is the balance of authority between Home and Host regulators. This is because the inclusiveness of the process assures acceptability and commitment, and reduces the uncertainty from unilateral action of individual countries.
Asia’s increased economic importance will rise as a consequence of its development efforts in liberalizing the economy and the financial system, allowing market forces to enhance efficiency and productivity. These forces will accelerate with increased integration of the ASEAN Economic Community, ASEAN plus 3, and plus 6.
For intra-Asia’s financial flows, Asia is not “homogenous” – the “North Asia” and financial center economies are developed, and some are mature economies facing their own challenges. The rest of Asia is emerging economies, some facing middle income trap, and some facing the transition challenges from centrally planned to market economy. “North Asia” will tend to have savings surplus, and need growth potential and export of FDI. “South Asia” will need savings to finance investments. There is a natural synergy in resource allocation, industrial and logistic linkage. Thus, regional financing and growing role of regional-centric financial services would naturally follow.
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