In the past five years, significant and comprehensive reform of our commercial banking system has been achieved, with financial stability being restored; corporate governance, strengthened; competition within domestic banking system enhanced with the entrance of new competitors. At the same time, new financial services such as E-banking and other innovative instruments such as smart cards are on the offer to customers giving them more choices of financial services with greater qualities. We are therefore at this point ready to move forward to the next step – to articulate our vision for the future of commercial banking and financial services in Thailand, taking into consideration powerful forces from the rapidly globalized international financial markets and the emerging financial landscapes within the region. BIS Review 8/2002  1  Ladies and Gentlemen The new financial sector master plan must be realistic and address the fundamental problems that we have. I see no role for the plan to strive to be a financial center or to develop the financial sector for its own sake. Thailand has a dual economic structure, with the modern industrial sector overlaying with the more traditional sectors outside Bangkok which employed more than half of our population. Thus, we should concentrate on improving the efficiency and stability of our domestic financial institutions to best serve our real sector.
There is generally a tendency towards concentration in infrastructure provision because of increasing returns to scale in a fixed cost business and often powerful network effects. This applies equally in the case of commercial bank provision of infrastructure: ECB survey evidence reveals that the ten largest correspondent banks in euro account for around 80% of correspondent banking payment values; and the top-4 global custodians now account for three-quarters of total assets in custody. Indeed, regulators have been giving increasing attention to the potential systemic spillovers from operational or business failures at major commercial bank providers of infrastructural services. That has led, for example, to the initiative in the US to implement “New Bank”, a dormant shell company to take over the functions should one of the two major clearers in the US Treasury market cease operations. 34 It may be that a competitive environment can be sustained, particularly as the cost of technology falls, lowering barriers to entry, and liquidity bridges and other forms of interoperability are established between systems. But, the jury is still out. Recent evidence on the trading side, particularly in the US, is mixed: some trading platforms, such as Archipelago and INET, have been swallowed up by the incumbent exchanges; others, such as BATS Trading are thriving, keeping the pressure on the exchanges to cut costs and upgrade their services. 35 I suspect what we are seeing is a redefinition of the market on an international scale.