Supervisors will always be tempted to make risk estimates more conservative – which is, of course, prudent. Being too conservative, however will make risk models less attractive for banks to use it not only as a regulatory instrument but also as an effective internal risk management tool. Finally, changes that we will introduce through the TRIM project must be implemented in a reasonable manner.
Despite the sound policies in place, we frequently witness sharp volatility which is due to speculative capital flows and not justified by its fundamentals. At the same time we have progressed quite liberally in terms of our capital and current account policies. The adoption of these policies was endorsed by multilateral agencies, including the IMF, during the height of the Asian crisis.