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Published on April 2, 2008

It may be concluded the regulatory body should remain under Bank of Thailand (BOT) control or become a new independent organisation. It may also indicate the Kingdom should adopt an umbrella regulatory structure like Washington has opted for.

Chodechai Suwanaporn, director of the Fiscal Policy Office's Financial System Section, said if the supervisory function remained with the central bank, it should be authorised to supervise all kinds of non-bank companies and able to introduce measures for business development.

This would ensure that credit companies were completely under the authority's microscope and not able to cause problems like US mortgage lenders have.

"The performance of non-bank companies remains good, but we don't know what will happen in the future," said Chodechai.

The new Financial Institutions Business Act gives the BOT a mandate to examine some non-bank activities, excluding the leasing, hire-purchase and factoring businesses. Chodechai said the major US overhaul of its financial system authorised the Federal Reserve to increase the regulation of financial institutions and do away with poor collaboration between regulators.

However, he insisted the Kingdom's supervisory body should be separate from the central bank.

The two functions - supervision and monetary policy - would result in a loss of focus. The BOT cannot handle both responsibilities as well as it might. It would do better to concentrate on a single role.

Moreover, it could lead to a conflict of interest, because the BOT's monetary policy could be suitable for financial institutions but risky for the macroeconomy.

Phong-adul Kristnaraj, senior director of the BOT's Financial Institutions Monitoring and Analysis Department, said the supervisory function should be with the central bank, because it would facilitate implementation of policy.

With supervisory responsibility, the BOT would be able to introduce collaborating macro and micro policies, which would be more efficient.

"When the banking system is running smoothly, it does not matter who the regulator is, but when there are problems the central bank would be able to coordinate monetary and supervisory policies," Phong-adul said.

He believes the new financial laws will prevent conflicts of interest such as those that hindered BOT attempts to discover the truth in situations like the Bangkok Bank of Commerce embezzlement case.

Anoma Srisukkasem

The Nation