Tarisa Watanagase: Mitigating fraud risk in financial institutions Keynote address by Dr Tarisa Watanagase, Governor of the Bank of Thailand, at the seminar on “Mitigating Fraud Risk in Financial Institutions”, Bangkok, 29 April 2008. *  *  *  Khun Kaisri, Distinguished Guests, It is my great pleasure to join you at this seminar on “Mitigating Fraud Risk in Financial Institutions”, hosted by KPMG Thailand. I would also like to thank the host for giving me this important opportunity to share the views of the Bank of Thailand on this topic. The globalization of the financial services industry, the increased sophistication and complexity of financial institutions and their services, and the ongoing advancement of technology continue to introduce new risks and opportunities for fraud. The pace and complexity of these advances have vastly accelerated beyond the risk associated with traditional credit and market risk activities. One of those emerging risks in financial institutions is fraud risk, which needs to be effectively controlled through effective governance and sound operational risk management processes. Fraud risk in financial institutions has increased as perpetrators use advanced innovation and technology to identify and exploit weaknesses in banks’ IT systems, databases, and delivery channels, including ATMs and the Internet. Financial institutions must take care to ensure that system security measures are effective as a means to combat fraud.
5 By law, IOR is available only to depository institutions.6 Absent frictions, IOR should provide a floor on interest rates, since competition between banks that can acquire funds in the wholesale market at rates below IOR and earn the spread should bring these rates very close to that paid on reserves. In practice, a number of frictions have led money market rates to trade moderately below IOR. ON RRP, which is offered to a broad selection of counterparties that includes money market funds, is intended to intensify competition in money markets and enhance the transmission of IOR into other overnight money market rates. It also has proved useful as a shock absorber. I will get back to that in a moment. The transmission of monetary policy relies on competition within, and integration across, money markets. The FOMC’s policy target is the federal funds rate, which is a measure of what banks pay to take out unsecured overnight loans from other banks and from government-sponsored entities. However, the Federal Reserve does not transact in the federal funds market, and therefore cannot directly impact the federal funds rate.7 Instead, it relies on a predictable relationship between rates in the markets in which it does operate, and rates on federal funds borrowings.