Should the Thai central bank also supervise banks and manage foreign exchange reserves?
Bangkok Post article: July 03, 2007
REGULATION / BANK OF THAILAND
Official urges central bank to give up bank-supervision role
DARANA CHUDASRI
The roles of bank supervision and foreign reserve management should be separated from the Bank of Thailand, which should instead focus strictly on monetary policy management, said Chodechai Suwanaporn, a director of the Fiscal Policy Office.
Dr Chodechai, speaking at a Thammasat University conference on the role of the central bank, said past experiences with failed banks such as the Bangkok Bank of Commerce pointed to imbalances between stability and financial development.
Having the central bank also responsible for supervising the financial sector affected the efficiency of monetary policy, he said.
''The Bank of Thailand risks losing creditability in implementing monetary policy if the central bank is unsuccessful in supervising financial institutions and some banks get into a mess,'' Dr Chodechai said.
He said the central bank's reputation, which was severely affected during the 1997 crisis, had gradually recovered thanks to a number of organisational changes made over the past several years.
But Dr Chodechai suggested that international reserve management should also be separated from the bank to improve efficiency, noting that in past years, countries such as China, Singapore and nations in the Middle East had set up independent organisations to manage their reserves.
But Atchana Waiquamdee, a deputy central bank governor, noted that there was no clear global consensus on whether supervisory duties should be split from monetary authorities.
''Some countries such as Singapore and the Netherlands have actually returned their supervisory tasks to the central bank after having been separated earlier,'' she noted.
Dr Atchana also cited an Asian Development Bank study that questioned the benefits from separating supervisory duties from the central bank given the relative lack of complexity of Thailand's financial system.
But she said it was an issue that could be revisited in the future if the financial environment changed, and added some supervisory tasks would already be transferred to the new Deposit Insurance Agency once it is established to serve as a cross-check for the central bank.
The new agency is expected to be set up within the next several years and take over the role of insuring bank deposits from the Financial Institutions Development Fund.
Dr Atchana acknowledged that the growing size of the country's foreign reserves, now over $70 billion, added pressure on regulators in terms of portfolio management.
''The central bank has considered the issue. But frankly, the reserves right now are not yet large enough to generate economies of scale [from separate management],'' she said.
Virathai Santipraphob, a senior vice-president and economist at Siam Commercial Bank, said one significant challenge for the central bank was the need to oversee not just the financial market, but also trends facing other sectors such as manufacturing, labour and the capital market.
He suggested that the central bank emphasise offering market guidance, and revisit the relatively wide range used for the inflation-targeting framework.
The central bank's Monetary Policy Committee currently sets short-term interest rates based on a target of maintaining core inflation within a range of zero to 3.5% over the next eight quarters.
