We have recently conducted a survey of the financial institutions to check their readiness to conform to the credit risk guidelines under the New Accord. I have been reported that many plan to be ready for the standardized approach, while others are working towards the IRB approach, this is a welcome news. More importantly, financial institutions have all started the effort to strengthen risk management in their respective institutions with some notable progress so far, and we look forward to more progress to come. I would like to take this opportunity to commend all of you for such efforts. After all, the BIS capital requirement only serves as a cushion of losses or failure of an institution whereas it is the risk management that reduces the chance of failure. The significant progress you have made in the area of risk management deserves our full support and commendation, particularly so as this is a very difficult time for the financial industries. Ladies and gentlemen, Coming back to the issue of preparation for the New Accord, one can see that significant challenges remain ahead. I will now turn to these challenges. First, the technical and infrastructure aspects. It is important to build up a deep understanding of the technicality of approaches and methodology underlying the New Accord. Moreover, it is critical to achieve in-depth knowledge of risk management and the impact of such developments on business model of the financial institution. Therefore the task ahead is very challenging, far beyond just acquiring software that would crank out numbers.
Commercial banks around the world have begun to find the technology to tackle such challenges profitably. However, there must be rewards to financial innovation and risk management capability that encourage financial institutions to address these segments of the markets profitably since a financial undertaking which looses money over time is not sustainable. The adoption of the New Accord, therefore, must ensure that the financial need of the dual economy is served. Secondly, while the Bank of Thailand can help foster the infrastructure for risk management, we must avoid the problem of taking away the incentive for, and accountability of, the private institutions to manage their own internal database that could be used for their own models in the long run or to manage their own risks. If a regulator oversteps the bound, there may be risk of moral hazard. Much difficulty will go into walking the thin line in overseeing safety of a system and to avoid "approving" the risk model or risk management system. I hope that this seminar will shed light on the experience in other countries. These challenges are complex and difficult in nature, but we must tackle them successfully to ensure that the Thai financial institutions are strong members of the global financial community. The market risk seminar today is a strong indication of this intention to meet the challenges. Back in 1996, the Bank of Thailand had already embarked on the study and preparation for the adoption of the '96 Accord on Market Risk.