Any exposures to the rest of the group must be limited and on commercial terms. All large UK banking groups – defined as those with ‘core’ retail deposits greater than £ billion – are required to implement ring-fencing by 2019. Currently, seven banking groups cross this threshold. Between them, these groups have around £ trillion of assets, both in the UK and overseas. The ring-fencing regime is designed to be consistent with the other parts of the post-crisis regulatory framework. The most systemically-important ring-fenced banks will be held to higher capital requirements. The Systemic Risk Buffer will be applied to ring-fenced banks to ensure they are adequately capitalised and resilient to shocks. We expect ring-fenced banks to have, on average, around 1.5 percentage points more high-quality ‘Tier 1’ capital than non-systematically important banks.2 And a ring-fenced bank will not be able to be capitalised by debt raised externally by its group, which would give rise to so-called ‘double leverage’. Overall, the Bank estimates that ring-fenced banks’ total loss absorbency will be, on average, around 27% of their risk-weighted assets, higher than the 17% recommended by the ICB.3 Ring-fencing also helps improve the resolvability of the big UK banking groups. The resolution strategy for groups including ring-fenced banks will typically involve a bail-in at the level of the holding company. Bail-in would recapitalise the relevant entity by passing losses up to the holding company to be borne by shareholders and debt-holders. This should stabilise the group.
However, to overcome the challenge of global dynamism over the long run, monetary and financial stability alone are not sufficient. The challenge here is for the Thai economy to make sustainable gains in productivity through increased flexibility, efficiency, and competitiveness amidst the dynamic global economic conditions and structure. In this respect, we need to promote a sound and stable macroeconomic environment by carrying out necessary reforms in the real sector and financial sector. The real sector must work continuously in improving productivity to enhance its competitiveness. So far, reform efforts from both the private and public sectors have been made to promote transparency, strengthen governance and improve the quality of human resources. In the long term, the government plans to embark on key infrastructure investment projects, which include the expansion of the mass transit network in Bangkok, water resource management, and an integrated logistics system. These public investments will ease bottle-necks without exerting too much pressure on external stability and allow firms to focus on improving their efficiency and productivity. On the financial sector, the Bank of Thailand has played an important role in strengthening the financial infrastructure. The Financial Sector Master Plan (FSMP), in place since 2002, will move into its second phase. FSMP aims to broaden access to financial services to all potential users, promote competition in financial services in order to enhance financial efficiency and resiliency and ensure that our financial sector can perform well in the global competitive environment.