This potential trend, of course, would also depend on accounting standard and a regulation on fair valuations, which itself is still under much debate. Thus, strengthening of risk management and supervision is important. Indeed, the importance of this is highlighted by the rebound in many regional stock markets as well as upward pressure on the currencies. I have also observed from some reports that, within the many financial centres, the recent return generated by FX traders have been strong, while hedge funds, thought to have seen end of days, are starting to come back to life. We may be heading in for a sporadic period of increased risk-appetite. At the same time, many corporate borrowers, particularly the large conglomerates which used to fund from global market, may switch to domestic market, due to retrenchment of international debt market, as well as still heightened risk-aversion and retrenchment of global banks. This would be at the same time as increasing issuance of local sovereign debt to finance stimulus package. In the early stage of recovery, risk of crowing-out may not yet be high, but even at this stage, the investment portfolio of local financial firms may shift significantly, and may likely see increasing concentration risk due to increased exposure to major conglomerate which used to source overseas funds. But as momentum of recovery gathers pace, competition for funds and risk of crowding-out rises. Therefore, even abstracting from challenges of reshaping regulatory framework, managing the risks from the current market environment is demanding.
However, this, in turn, raises some concern on how to justify “rare circumstance”. Again, implementation is a challenge, and no doubt you would have valuable discussions here. As for the efforts to mitigate procyclicality, various models have been proposed for the buildup of reserves and capital buffer. Each model has its pros and cons. On the capital side, there are proposals to increase capital charge for securitisation product and market risk, as well as harmonising the definition of capital. We agree that the banks’ capital buffers need to be improved both quantitatively and qualitatively. However, timing of implementation of guideline on definition of capital is quite crucial, and must be carefully considered. On the provisioning side, the current discussion is on which approach to be used as an alternative to the incurred loss model. The Bank of Thailand supports the principle of expected loss and dynamic provisioning, although it will be technically challenging to implement. As a regulator,  BIS Review 146/2009  5  we need to weight the balance on pros and cons of various models proposed as well as consider if it fits the national context. Turning now to the third dimension where a balanced approach is required. The balance in relationship and responsibility of home and host regulators, and a balanced voice of emerging markets on cross-border systemic risk. This is all the more important now, as regulatory reform across countries can create regulatory gaps and un-level playing-filed, that could cause instability down the road.