The concern is not so much about control over access to restricted areas and cash vault, but about ensuring proper authorized access to the IT systems and the electronic funds transfer network. And the issue is not so much about keeping bank premises open after a major disaster, but about ensuring that all key banking operations and network continue to function uninterrupted under a proper business continuity plan. These are aspects of modern security risks to banks. They are part of the broader operational risks, which have received greater attention as the business of banking moves further and further away from face-to-face transactions. In Thailand, to address this challenge, we as bank supervisors, have over the past years provided best-practice guidance to the local banking industry in a number of important areas, including loss data collection, business continuity management and plan, IT security, outsourcing, and IT disaster recovery. In addition, Basel II will, for the first time, impose an explicit capital charge on banks for operational risks, on top of the traditional credit and market risks. Implementation of Basel II in Thailand will begin at the end of this year, and the preparation for its implementation is progressing on schedule. I am confident that with the implementation of Basel II, the quality of risk management by banks in Thailand, especially with respect to operational risks, will improve further. I have taken a lot of your time in this opening remark. But the topic of today’s seminar is important.
Given the depth of the recession, there is likely to be a greater than usual degree of history-dependence, or hysteresis, in this path. The deeper and longer the recession, the greater the scarring effects on physical and human capital and hence the economy’s productive potential. The May MPR scenario captured some of these scarring effects. In particular, it assumed that lower investment as a result of the Covid crisis was not recovered, leaving the capital stock 4% lower. Combined with some drag on total factor productivity (TFP) growth, the level of output ended 1½% lower. That scenario assumed no scarring effect on human capital, however, with unemployment returning to pre-Covid levels and the long-run rate of unemployment unchanged at around 4¼%. At the same time, it was recognised that this was just one of many possible paths for the economy. Other paths would give rise to differing degrees of scarring to physical and human capital and losses to the long-run productive potential of the economy. On 14 July, the Office of Budget Responsibility (OBR) will publish three possible scenarios for the economy involving different degrees of depth and length of the downturn. Perhaps the key uncertainty, from a scarring perspective, concerns the labour market. As Chart 2 illustrates, the Covid crisis has had markedly different effects on different sectors and, most likely, will continue to do so. Chart 14 compares different sectors’ contribution to the pre-Covid employment boom and its subsequent output contraction.