And thirdly, the level and complexity of interconnectivity of various types of financial institutions have increased very rapidly, and with this, increased counterparty risk and systemic risk implications. Much of this is in the OTC derivatives markets which are hard to monitor, and presents huge problem in unwinding during a crisis, even with standard agreements such as the ISDA Agreements. The overhaul of international regulatory framework is a major challenge, but as we all know, this process will not be immediate, as the regulators of major economies are still focused on solving the turmoil. In the meantime, it is up to all of us to be aware that conforming to minimum standard, even one prescribed by international best practices, may not be adequate if the risk profiles dictate a higher level of vigilance, risk management, and capital adequacy. In this regard, given the complex nature of financial conglomerates in emerging markets in Asia today, a robust framework of risk management and supervision on a consolidated basis is a must. In the case of Thailand, we have undergone the Financial Sector Assessment Programme (FSAP) of the IMF and the World Bank in 2007. FSAP assessed the regulatory framework of banks, capital market, insurance, the payment system, against international best practices such as the Basel Core Principles for Effective Banking Supervision, as well as the Insurance Core Principles of IAIS. Overall, the FSAP team found the Thai financial system to be resilient and with the regulatory framework broadly conforming with international best practices.
The necessary reforms would have to include changing the public finance structure to address the ageing problem, overly generous social security systems, etc. These are problems shared by all European countries, and are politically quite hard to resolve. The consolidation of public budgets to a sustainable position is thus one of the key challenges for some accession countries (as well as for the present EU members). This is all the more true because upon EU accession the Stability and Growth Pact will also become relevant to the new member states. This is something that has not been fully realised and appreciated yet, at least in the Czech Republic. It will be very interesting to hear the experience of the other accession countries. There are many more aspects to the accession debate. These include balance-of-payments developments and exchange rate issues; the role of structural policies in achieving the optimumcurrency-area criteria; the role of fiscal and income policies in fulfilling the Maastricht criteria both on  2  BIS Review 17/2003  inflation and on exchange rate stability; financial sector reforms and developments, including their implications for monetary transmission; and so on. I could spend much longer discussing these matters, as well as focusing more deeply on the issues that I have already mentioned. Nonetheless, I do not want to prejudice our debate by volunteering my own opinions at the very beginning of this conference.