"It's not good if the draft is not approved, although it would not affect the master plan that much," Paiboon Kittisrikangwan, a senior director of the BOT's Financial Institutions Policy Group, said last week.

Without the new law, the central bank could not introduce complete measures to supervise banks, and its consolidated supervision policy, which allows it to monitor the banking business broadly, would be undermined, he said.

However, he is optimistic that the draft bill will be signed off on by the Council of State and passed to the NLA for enactment.

The second master plan aims to enhance the efficiency of the banking system after the first master plan restructured the system.

The first plan allowed only commercial banks to operate, while finance companies and credit fonciers were phased out. They were required to upgrade into commercial or retail banks or shift to being non-bank firms.

Chanchai Boonritchaisri, senior director of the Legal and Litigation Department, said the BOT had on three occasions clarified details of the draft to the Council of State and expects the agency would endorse the draft.

The central bank has been criticised for granting itself too much authority to supervise and regulate banks without allowing for a proper checks-and-balances function by the Finance Ministry. The central bank, however, insists the new law is needed to facilitate its supervisory role.

According to the draft, the BOT would like to adopt consolidated supervision legally in a bid to monitor and acknowledge the overall picture of each bank's performance and that of its affiliates.

The central bank would also be allowed to intervene in a troubled bank before that bank's performance worsens. This would save the central bank from having to spend too much to rehabilitate failing banks.

Anoma Srisukkasem

The Nation