As a result, banks in Asia were not as prone to the problem of massive over-leveraging, undercapitalization, or under pricing of risk of complex derivatives. So from this perspective, the significant improvement of Basel III over Basel II is in addressing the problem of procyclicality and adoption of macroprudential approach in our policy framework. This is a major contribution of Basel III going forward. The key emphasis of Basel III is to strengthen capital base. While this is important, I regard this as only a second line of defense. The first line of defense is a good risk management system, and strong governance. Asia’s simpler banking model, and reforms to strengthen bank risk management and risk-based supervision, help to foster a strong first line of defense. But as I mentioned earlier, we would risk false sense of security if we believe we can depend just on our simpler banking model. With economic and financial liberalization, especially propelled by the regional economic integration such as ASEAN Economic Community or AEC, that simpler banking model is changing. I will return to this issue later. For now, let me return to Basel III and the potential side-effects for Asia? There are some concerns about unintended consequences from Basel III that bankers and regulators in Asia have voiced to the standard setters. I will, at this time, not comment on those issues which are not concluded such as liquidity rule.
The plan is to improve efficient and safe payments system in the region to facilitate trade and retail clients, as well as support payments and settlements of securities in our capital markets. The road for AEC goods and services to flow has been built, we are now making it better. Payments should be easier, cheaper, faster, safer, and embrace e-technology to do this. Banking sector integration will work towards allowing entry of ASEAN banks into other member countries. Currently we are discussing the prudential criteria for Qualified ASEAN Banks. We expect to reach conclusion by the end of this year, and for implementation to begin in 2014. So, given that the road is built, the financial intermediary or the carrier is set to operate cross-border services more widely. The capital account liberalization is also being speeded up with removal of capital control, that is equivalent of having less customs and immigration check-point at our borders. The capital market integration will act as catalyst to speed up the developments by expanding products and competition, and flow of financial assets. The AEC will also serve to better integrate ASEAN into the other regional economies and supply chain, that is to integrate ASEAN plus 6. Thailand is prepared for this, and our plans are being implemented on track. These are Financial Sector Master Plan phase II for banking sector, the capital market development plan, the Payment Road Map. Our capital account liberalization plan is undergoing industrial hearing.