During the past four years, we have conducted stress-testing, both top-down and bottom-up by requiring local banks to do the same, for risk management and capital planning purposes. Currently, stress-testing has become an integral part of our supervisory process. From the experience so far, we find stress-testing to be an extremely useful process and dialogue for identifying potential weaknesses of banks in a forward-looking manner, as well as in alerting bank management to take the necessary corrective actions. As a result of the macro-prudential framework implemented and the emphasis of supervision that has been placed on improving risk management of banks, Thai financial institutions, so far, have remained resilient to impact of the global financial turmoil. I believe this is a common experience here in SEACEN. Ladies and gentlemen. Looking ahead, once the global economic and financial system recovers, many important issues will require answers on how to move forward from the point of view of regulatory guidance. On this, the key issues that will be most relevant to our region in my view will include: first, large capital inflows and their implications for risk management capacity of the financial system; second, the issue of procyclicality and how to deal with it effectively in the context of bank regulation and supervision, and third, managing the cross-border spillover effects that potentially can be a source of systemic risk. First, on the issue of capital flows.
The issues now range from the choice between the use of rule versus discretion on bank capital, to the use of leverage ratio, and to the implementation issue that includes how to exercise the measures effectively in the context of a financial system that is non-complex, as is the case of the SEACEN economies. On this, I have a view that vigorous stress-testing by supervisors and banks can help keep the effects of procyclicality manageable. I hope this conference will further discuss this issue. Finally, the complexity and cross-border linkages of financial systems will continue to increase, not decrease, following this crisis. On the other hand, the right and effective global regulatory and supervisory structures to handle cross-border implications are still evolving, while information flows and cooperation among regulators and supervisors, at this time, continue to be limited. It is clear that without significant improvements in both information flows and cooperation among supervisors, it will be difficult to prevent or contain future financial crisis spillovers effectively. Ladies and Gentlemen, this eleventh SEACEN conference provides us with an excellent opportunity to discuss these current and important issues. Our challenges are similar, and through our coordinated views and collaborated efforts, the SEACEN economies collectively will be in a stronger position to address these challenges. I wish all of you a successful conference with a fruitful exchange of ideas and a wonderful collaboration.