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Developing the Efficient and Resilient Financial System for Thailand: Lessons from the Crisis and Challenges Ahead

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Author Info

  • Yunyong Thaicharoen

    (Bank of Thailand)

  • Rungporn Roengpitya

    (Bank of Thailand)

  • Jiranit Chaowalit

    (Bank of Thailand)

  • Songklod Rastapana

    (Bank of Thailand)

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    Abstract

    The purpose of this paper is to discuss and raise important policy implications from the U.S. crisis in the Thai context, so as to contribute to the appropriate and forward-looking policy design for the Thai financial. Issues discussed in this study involve: (i) financial linkages and systemic risk assessment; (ii) procyclicality of the financial system; (iii) appropriate regulatory arrangement, bank governance and executive compensation. Regarding the systemic risk issue, we found evidence of negative externalities imposed onto the banking system value-at-risk (VaR) by banks and other types of financial institutions such as finance, securities and insurance companies. Therefore, bank regulators needs to be aware of the additional risk imposed onto the system during distress time and take this into account when assessing the risk level of banks. Next, the results from panel data regressions suggested that the level of procyclicality decreased from the pre-Asian Crisis period when compared to the post-crisis period. Moreover, the nature of cyclicality differed by asset classes. Therefore, we proposed that, if their goal was to mitigate excessive cyclicality, supervisors must also take into account types of loans as well. Finally, the paper outlines the importance of implementing regulatory statues that will minimize regulatory arbitrage as well as promoting cautious financial innovations and bank governance, which were identified as a few of the fundamental causes leading to the onset of the U.S. financial crisis.

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    File URL: http://www.bot.or.th/English/EconomicConditions/Semina/Documents/Paper4_sym09.pdf
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    Bibliographic Info

    Paper provided by Economic Research Department, Bank of Thailand in its series Working Papers with number 2009-04.

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    Length: 92 pages
    Date of creation: Apr 2009
    Date of revision:
    Handle: RePEc:bth:wpaper:2009-04

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Xavier Freixas & Jean-Charles Rochet, 1997. "Microeconomics of Banking," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061937, January.
    2. Ben Cohen & Eli Remolona, 2008. "The Unfolding Turmoil of 2007–2008: Lessons and Responses," RBA Annual Conference Volume, in: Paul Bloxham & Christopher Kent (ed.), Lessons from the Financial Turmoil of 2007 and 2008 Reserve Bank of Australia.
    3. Rungporn Roengpitya & Phurichai Rungcharoenkitkul, 2010. "Measuring Systemic Risk And Financial Linkages In The Thai Banking System," Working Papers 2010-02, Economic Research Department, Bank of Thailand.
    4. Markus Staub, 1998. "Inter-Banken-Kredite und systemisches Risiko," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 134(II), pages 193-230, June.
    5. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
    6. Jan Kregel, 2008. "Using Minsky's Cushions of Safety to Analyze the Crisis in the U. S. Subprime Mortgage Market," International Journal of Political Economy, M.E. Sharpe, Inc., vol. 37(1), pages 3-23, April.
    7. Gabriel Jiménez & Jesús Saurina, 2006. "Credit Cycles, Credit Risk, and Prudential Regulation," International Journal of Central Banking, International Journal of Central Banking, vol. 2(2), May.
    8. Caroline Fohlin, 1998. "Relationship Banking, Liquidity, and Investment in the German Industrialization," Journal of Finance, American Finance Association, vol. 53(5), pages 1737-1758, October.
    9. Jean-Charles Rochet & Jean Tirole, 1996. "Interbank lending and systemic risk," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 733-765.
    10. Douglas W. Diamond & Philip H. Dybvig, 2000. "Bank runs, deposit insurance, and liquidity," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Win, pages 14-23.
    11. Gianni De Nicolo & Myron L. Kwast, 2001. "Systemic risk and financial consolidation: are they related?," Finance and Economics Discussion Series 2001-33, Board of Governors of the Federal Reserve System (U.S.).
    12. Robert A. Eisenbeis, 1997. "International settlements: a new source of systemic risk?," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 44-50.
    13. Martin Hellwig, 1995. "Systemic Aspects of Risk Management in Banking and Finance," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 131(IV), pages 723-737, December.
    14. Carlo Brambilla & Giandomenico Piluso, 2007. "Are Banks Procyclical? Evidence from the Italian Case (1890-1973)," Department of Economics University of Siena 523, Department of Economics, University of Siena.
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