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Comments on CDP-FC: Financial Sector Development

Comments on CDP-FC: Financial Sector Development. Veerathai Santiprabhob 26 October 2006. Assessment of the Six Components of the CDP-FC. Assessment of the Six Components of the CDP-FC. Comprehensive review of the post-crisis developments However, the assessment tends to

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Comments on CDP-FC: Financial Sector Development

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  1. Comments on CDP-FC:Financial Sector Development Veerathai Santiprabhob 26 October 2006

  2. Assessment of the Six Components of the CDP-FC

  3. Assessment of the Six Components of the CDP-FC • Comprehensive review of the post-crisis developments • However, the assessment tends to • use check-list evaluation as opposed to focusing on contents and effectiveness, and • focus on legacy from the crisis and, hence, concentrate on bank problems. • Therefore, the follow-up activities and desired actions do not adequately address upcoming challenges.

  4. CDP-FC and the 10th National Development Plan • For the CDP-FC to be useful for and relevant to the implementation of the 10th National Development Plan, it has to • address futurechallenges for the Thai economy and financial system, and • prioritize action plans based on needs and effectiveness.

  5. Financial Sector Challenges • There is a number of challenges faced by the Thai financial sector that is not covered by the CDP-FC, but is crucial to the growth fundamentals and needs to be tackled now. • Three Groups of challenges: • Macro framework • Financial sector structure • Supervisory regime

  6. Financial Sector Challenges: Macro Framework • Preparing for the aging society: • Rising household debt and the national saving scheme • Needs to have long-term financial instruments (e.g. property fund, annuity products, etc.) • Solvency of the social security schemes • Be ready for the increasingly volatile global financial markets: • Effects of short-term capital movements on the real sector • Pace of capital account liberalization • Effectiveness of monetary policy transmission mechanisms

  7. Financial Sector Challenges: Financial Sector Structure • Steps for further consolidation (keeping in view impacts of Basel II and partial deposit insurance): • Mechanisms to encourage and facilitate further consolidation among private FIs • Further consolidation of state-owned FIs • Lead time for consolidated FIs to build their strengths and competitiveness • Market segmentation and level playing field: • Bank and non-bank players • Private FIs and SFIs

  8. Financial Sector Challenges: Financial Sector Structure • Roles of foreign FIs: • Consumer benefits and protection for domestic FIs • Potential adverse effects from intense competition for certain groups of customers • The need to preserve Thai FIs for long-term benefits

  9. Financial Sector Challenges: Supervisory Regime • Cross-agency supervisory frameworks: • Regulators are not catching up with the developments of financial groups and universal banksin terms of both prudential and business support purposes • Regulators need to be more exposed to business practice to ensure supervisory effectiveness while minimizing business costs (both direct and opportunity costs) • Supervisors need to have business understanding to be able to understand FIs’ business strategies and forward-looking issues

  10. CDP-FC and the 10th Plan: Conclusion • Need to be more forward looking to address upcoming challenges instead of focusing on the legacy of the last crisis • Need to focus on the contents, spirit and effectiveness of measures as opposed to check-list evaluation • Issues and action plans need to be prioritized

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