Ladies and Gentlemen, Now let me turn to the issues that directly impact the banking industry: what might be the implications for financial institutions as a result of the measures discussed earlier, and what are the challenges ahead for the banking sector? I would like to point out a few: First, in the new financial landscape following the implementation of the Master Plan, we anticipate a structural change in the banking sector with more industry consolidation and emergence of financial conglomerates, embraced by the “One Presence” principle. Such processes should lead to larger size and falling number of financial institutions. Although not a sure ticket to success, size will allow the working of economies of scale and scope - to eliminate redundancies in administrative and operational functions, reduce costs from more diversified portfolio of clients and enhance income from provision of wider range of services. For the first time ever in the Thai banking history, banks will have the opportunity to do all these and grow through consolidation and/or forming a financial group. Up until now cost cutting and income enhancement, for example, were possible only through reorganization and re-engineering within the same organization. Of course, there were cases of mergers in the history, but they were mainly out of necessity to solve the problem of some weak  BIS Review 43/2004  3  banks, not as a calculated move for growth.
This cautiousness, which is rational for each bank and counterparty individually, is bad for the system because it constrains the supply of credit and results in tighter financial conditions. This, in turn, makes the bad economic outcome more likely. The stress assessment regime that is being implemented should help to break this dynamic. Banking institutions will end up with sufficient capital to withstand even an adverse environment. This should reassure banks and investors that the banking system will remain resilient. With more capital in place, more lending should take place. This, in turn, should reduce the likelihood that the bad economic scenario will, in fact, be realized. The result: a virtuous rather than a vicious circle! BIS Review 28/2009  5  The point of the stress assessment is not to pick winners or losers, but instead to ensure that the banking system and all the major banks have sufficient capital to withstand a very adverse environment. Following the conclusion of the stress assessment process, the government is committed to supplying whatever amount of capital is needed to ensure that all the major banks will remain viable. The second major initiative that deserves mention is the PPIF or Public-Private Investment Fund. This facility, which would be underpinned by TARP capital and private capital, would purchase illiquid, legacy assets.