Tenth, and final point, the success of the bank depends not only on strategy and policy direction set by the Board, but also on the capability of senior management to take on those policies and implement them. Thus, the Board must give high priority to recruiting and retaining quality senior management, including work capability, experience and vision to carry out the task. But most importantly, he or she must be of high moral integrity. The greatest weight is given to the personal attribute of high integrity because senior bank management are continually surrounded by wealth and the temptation for huge financial gains through improper conduct. Ethic is the personal inner compass that prevents the individual from taking the wrong turn and fall into the trap of exploiting conflict of interest. It would also help the individual to stand up against such conduct by others in the bank, even those of higher ranks. Such personal ethic will also help the individual to stand up to pressures from those in position of power in the country as well as those who represent such powers who have infiltrated the operation of the bank. Such moral leadership will provide an example to bank employees to uphold the high working principle thereby helping to safeguard long-term growth of the bank. Ladies and gentlemen, I have no intention of “preaching to the Pope”. I wanted merely to share an understanding on the role and responsibility of bank directors, and convey to you the Bank of Thailand’s expectation from your directorship role.
To develop a robust rebalancing strategy, we must understand why there are other, also highly competitive investors, who take the other side of these trades. We also need to understand our own edge, the comparative advantage – or disadvantage – of the size, time horizon, and governance structure of the fund. These issues are all intimately linked to questions on the research frontier of financial economics. So far, the rebalancing strategy has served the fund well. From 1998 to 2011, around 0.5 percentage point – a considerable portion – of the total annual return can be attributed to rebalancing. We believe rebalancing will also be important going forward, but we need to further deepen our understanding of time-varying expected returns and risks. The other main topic of today’s conference – well-functioning markets – is also of particular interest to us. Without well-functioning markets, the massive reallocation of wealth from oil in the ground to a claim on a small share of future global output would not have been feasible. Well-functioning financial markets are also, through the allocation of real resources, important for sustained growth at a global level. The financial crisis displayed great challenges related to how the markets function. We saw mispricing of risk, and the difficulties of managing financial imbalances. Other problems were related to liquidity. Trading of fixed income instruments take place at the desks of the large investment banks. The problems of these banks in September 2008 implied a literally closing of the main fixed income markets.