To provide a starting point in answering this question, I would like to share with you tonight some of our views on the current state of the Thai economy, where we are, where are we heading, and most importantly, what we see as the key ingredients for sustaining Thailand’s economic growth. Ladies and Gentlemen, At the height of the Thai crisis, Thailand’s nominal per capita GDP in dollar term fell by more than 30% according to a World Bank estimate while financial restructuring costs have exceeded 30% of GDP, and capital flows reversals surpassed the 60% of GDP mark. Given such a depth and breadth of the crisis, the current momentum of recovery does suggest that Thailand has indeed come a long way. This view is increasingly shared by the market, including major credit rating agencies, with some analysts concluding that perhaps Thailand has more or less turned the corner. The extent to which Thailand has elevated from the crisis of 1997 is probably best illustrated by the latest macroeconomic performance and data. Thailand’s GDP growth in the first half of this year is a testament to the strength in the current recovery. The economy expanded by 5.1% in the second quarter after a robust 3.9% in the first quarter. In level terms, real GDP has now exceeded its pre-crisis level. And according to the latest incoming data, the economy in the third quarter looks to remain quite robust as well.
I’ll discuss how the development of new risks associated with climate change is beginning to change the practice of risk management at financial institutions in terms of governance, risk identification and management, scenario analysis and transparency. I’ll also say a few words on why I believe it is appropriate, even critical, for supervisors to focus on this particular risk. Before proceeding, I will emphasize that I am speaking for myself and my views do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System. Climate Change and Risk Management The discussion of climate change and risk management has introduced a new lexicon for risk discussions. Physical risk is the potential for losses as climate-related changes disrupt business operations, destroy capital and interrupt economic activity. Transition risk is the potential for loss resulting from a shift toward a lower-carbon economy as policy, consumer sentiment and technological innovations impact the value of certain assets and liabilities. These effects will be felt across business sectors and asset classes, on strategies and operations, and through the balance sheets and income statements of financial firms. At a practical level, risk managers at financial institutions need to develop the appropriate tools to identify, monitor and manage these risks. From one perspective, climate-related risks may manifest as realizations of familiar risks such as credit, market, operational, legal and reputational risk. The tools risk managers use, however, will need to change to reflect new data, changing relationships, and evolving interconnections.