The establishment of the Deposit Protection Agency should reduce banks’ moral hazard and  4  BIS Review 54/2008  introduce more market discipline to the banking sector by putting pressure on banks to improve financial strengths if they want to attract and retain depositors. I now turn to the Bank of Thailand’s financial sector master plan (FSMP). You may recall that the implementation of the first master plan started in 2004 and was completed in March 2007, when the last commercial bank licensed under the plan started its operation. Key initiatives under the first plan involved 1) improving financial access, 2) increasing efficiency of the banking sector through removal of regulatory obstacles to market development and through consolidation of smaller financial institutions, and 3) strengthening market discipline through more stringent information disclosure and enhanced consumer protection mechanism. Through licensing reform and the so-called one-presence policy, there has been a significant consolidation and reduction in the number of financial institutions under the supervision of the Bank of Thailand. While evaluation of FSMP Phase I is currently being undertaken, there is evidence to suggest that the banking sector has shown improvement in both operating efficiency and resiliency. Turning to the second-phased financial sector master plan, the overarching objective is to improve efficiency, competitiveness, and resiliency of the financial sector. The goal is that financial institutions can more effectively perform their intermediary functions and meet the challenges of a rapidly changing environment.
This is so that risks from potential concentration of market power and financial instability are minimised. The final pillar aims to fill the gaps in institutional, including legal and information, infrastructure that are necessary for an efficient and modern financial system. We will be looking at the legal framework and other measures that would support a more effective functioning and supervision of financial institutions. These include sound credit culture (e.g., bankruptcy and foreclosure laws) and implementation of international best practices, such as new international accounting standards. On the information side, efforts will focus on the information infrastructure that would assist financial institutions in pricing and managing risks better. Areas for improvements are, for example, the operation of the Credit Bureau, rating agency, and more complete data on key economic sectors such as the real estate and housing market, etc. BIS Review 54/2008  5  On the whole, while the policy recommendations will largely cover BOT-supervised financial institutions, those related to other types of financial institutions and broader financial markets can also be addressed if they are deemed to be systemically important. Ladies and Gentlemen, In closing, allow me to emphasize once again that Thailand’s record of economic resiliency to adverse shocks and uncertainties in the past should clearly attest to the strength of our underlying fundamentals. The US and Thailand are long-time partners, and I need not mention how crucial it is to both our economies that we strengthen our trade and investment partnership in the years ahead.