It is a remarkable a story of individual imagination and collective action – the self-same ingredients that first enabled humans to break free from their biological chains. One response to the Great Fire was the introduction of new fire laws and regulations. The first-ever building regulations were after soon put in place, specifying the materials to be used when building houses and the minimum spacing between them. This may not sound transformational now, but at the time marked a significant rewriting of the social contract between government, businesses and households. A second response, this time from the private sector, was to create a market previously missing entirely. In response to the devastation, a market for insuring people’s homes was for the first time created. The first fire insurance company, the “Insurance Office for Houses”, was set up in 1681 at the back of Royal Exchange, close to my office. It was the inspiration of (of all things) an economist, Nicholas Barbon. The idea was simple enough. By pooling risks across a number of households, both the insurer and insured were provided with an extra degree of financial protection against fire risk. A problem shared was a problem halved. The newly-installed rules and regulations around house-building reduced this risk further, by protecting individually-insured households, and collectively-at-risk insurance companies, from correlated conflagrations. This risk-pooling idea caught on. The home insurance industry grew rapidly, first in London, then Edinburgh, then across the UK. In 17th century Britain, home insurance was very much a creative industry.
At this time, we have mostly completed Basel II’s key guidelines with only a few remaining issues. This includes finalizing Pillar 1 – namely, Minimum Capital Adequacy Return Form, and the Recognition of External Credit Assessment Institutions and the Mapping Process Under the Standardized Approach (SA). On the commercial bank’s side, our assessment shows that the preparation for Basel II implementation is on track. In terms of capital impact, based on end of June data for 2006, our quantitative impact study shows that the BIS ratio for the whole industry is expected to decline approximately by 1.5 percentage point. This means Basel II implementation will not have a major impact on the Thai banking industry. At this time, while most of our banks have decided on using the SA for calculating minimum capital, they are fully aware of the need to improve the database to support a more advanced risk management process. Reflecting this, larger banks are in the process of developing advanced internal rating systems to be fully compliant with Basel II advanced approaches in the near future. By the end of this year, banks in Thailand will also begin parallel calculations of the required capital under Basel II. And we, at the BOT, are keeping a close watch on this progress with keen interest. Regarding the implementation of IFRS, I have to say the readiness amongst Thai commercial banks and foreign bank branches do vary a great deal.