For example, the current capital rules incentivise firms to reduce the volumes of outstanding derivative transactions on their books, as this reduces the capital charge applied. This is achieved by ”tearing up” or closing out unwanted trades. While it is not the primary intended consequence, some of this activity also makes firms simpler and more resolvable which should, in turn, reduce risks to financial stability. However, some innovation is pure regulatory arbitrage – that is, action taken by firms to reduce specific regulatory requirements without any commensurate reduction in their risk. Let me share with you a few recent examples of behaviour that might be problematic, even if they comply with the specified rules. Off-balance sheet leverage. The leverage ratio requires all on-balance sheet assets to carry a minimum level of capitalisation regardless of their risk. Off-balance sheet transactions are also captured in the leverage ratio, but if an on-balance sheet transaction can be restructured into an economically similar off-balance sheet transaction, it may not always attract the exact same capital charge. We have noticed that some  20  All speeches are available online at www.bankofengland.co.uk/speeches  20  institutions are now moving on-balance-sheet financing to off-balance-sheet formats using special purpose vehicles, derivatives, agency structures or collateral swaps. Some of these structures might meet the detailed requirements for calculating a specific financial ratio whilst others may have a harmless motivation. But we have noticed that some carry material credit risk which escapes the detailed aspects of the capital framework.
Veerathai Santiprabhob: Monetary and financial sector policy – moving forward Speech by Dr Veerathai Santiprabhob, Governor of the Bank of Thailand, at the Foreign Correspondents’ Club of Thailand (FCCT), Bangkok, 1 June 2016. *  *  *  Members of the FCCT Executive Committee, Distinguished guests, Ladies and gentlemen, Good evening to you all, It is my pleasure to be here with you tonight. Although this is my first time speaking at the FCCT, I can feel the vibes of active journalism, which underpins the club’s foundation and its long history in the community of journalists in Thailand. As one of the oldest press clubs in Southeast Asia, I would like to thank you for your continued commitment and contribution to the Thai economy and the Thai society. Public perception and expectation indeed play a large part in establishing credibility and effectiveness of economic policy. As public opinion influencers, journalists greatly contribute to achieving desired policy outcome. As we progress half way through the year, today I would like to share with you the Monetary Policy Committee’s latest economic assessment and monetary policy stance to support the current economic recovery and safeguard stability of the Thai financial system. After that, I will turn to the Bank of Thailand’s financial sector development policy, with a view to facilitating Thailand’s economic transition towards strong, sustainable and inclusive growth. Let me start by talking about recent developments in the global financial markets.