THE banking regulators have departed, perhaps unconsciously, from the liberal legacy of Tarrin Nimmanahaeminda, a former finance minister, and returned to the quintessential oligarchy in their regulation of the Thai financial sector.

This unconscious drive to oligarchy, to help the incumbent financiers survive and probably even emerge with a brighter future, reflects the regulators' attempt to save the financial sector from developing into a total system failure. A philosophy of ''the bigger the better" has now become almost an article of faith.

More than 90 finance companies have been urged to merge and to create fewer, stronger institutions as a result. The incentives they have been offered range from licences to broaden their financial services, official liquidity support before and after the mergers, through to the coveted bank licences for the most highly qualified.

Speaking at a roundtable discussion hosted by The Nation on ''The Merger Trend in the Thai Financial Industry", Theerasak Suwannayos, a finance and banking veteran, pointed out that the regulators have dumped the previous liberal philosophy, which is integral to the Thai Financial System Master Plan, in favour of oligarchy in their resolve to tackle the present financial crisis.

During the tenure of the Chuan administration, Tarrin sowed the seeds for the liberalisation of the Thai financial sector. Breaking the banking cartel and ending the monopoly of the big-time financiers were his primary objectives. Finance companies would not be allowed to become banks because they represented the incumbents who had already benefitted enormously from the Thai economic boom.

Tarrin wanted fresh players to enter the banking market and break the monopoly of the cartel, which had made such huge profits from the wide interest rate spread and inadequate competition. Hence, five new bank licences would be put up for grabs, marking the first phase of banking liberalisation in several decades. Three of these have already been awarded to the Italian-Thai Group, the MBK Property and Development Group and the GF Group.

Now the tide is being turned. Hoping to put an end to the crisis in Thai financial institutions once and for all, Amnuay Viravan, the finance minister, has gone along with the banking regulators' recommendation to consolidate the financial sector. The process will weed out the poorly-managed or inadequately capitalised finance companies and give rise to fewer ­ and stronger ­ finance companies.

Yet, Theerasak said, the regulators have failed to clearly indicate what kind of criteria the finance companies need to meet before they would be allowed to broaden their financial services or obtain the bank licences. ''If you read the official statement carefully, you'll see that they do not make any promise to give out banking licences to merged finance companies," he added.

Still, the benefits of the merger proposal will go to the finance companies, who are the incumbents in the financial industry. The Tarrin legacy has been dismantled.

Other panelists agreed that the road ahead for the consolidation of the Thai financial sector remains bumpy. ''It is a fresh issue; most mergers in the past were friendly," said Nittikorn Tantitham of the Thai Danu Bank.

''The Thai Danu-Finance One merger represents an attempt to further cement the strategic ties created earlier, yet it is going to lead us into having to take into consideration differences in culture or management. More important, this merger process must be handled with transparency, in order to give the customers or the creditors some level of confidence."

Nittikorn considers the practice of bailing out ailing finance companies in the April 4th Life Boat Scheme has become outdated. What the regulators have been attempting to do is to shake up the whole system and lay a new foundation for financial system stability.

The panelists broadly expressed their support for the trend towards mergers in the Thai financial institutions, yet when it came to making the mergers really happen they will hesitate and express their deep reservations. Apart from the complicated tax implications arising from the mergers, Theerasak noted that valuations would prove tedious.

''It will be difficult to arrive at final valuations that would make all the parties happy," he said. ''Besides, they have to pay attention to synergy. How are they going to handle their staff or explore business opportunities that will benefit each other?"

In practice, it will be difficult to assess the foreign exchange position of, say, Thai Danu or the property loans of Finance One. How can Finance One's debts be transferred into the new Thai Danu, created from the merger? Or how can an independent party arrive at a final price to transfer the equity of shareholders of both Thai Danu and Finance One into the new entity?

Wirot Poonsuwan, an attorney at law at Wirot International, foresaw a whole set of legal problems lying ahead. The merger law has not been tested although it has been around for a long time. The commerce officials are not acquainted with the merger law either.

The merger package for the financial institutions rests on the almost absolute power of the banking regulators to reward and punish. Wirot agreed with the regulatory efforts to bring about consolidation in the financial sector, yet he cautioned that in the absence of details in the merger package, finance companies will have to think twice before making any moves.

''My concern is that the merger package lacks detail. Nobody knows whether they'll get the licences once they agree to merge, not to mention the bank licence. Are the finance companies to continue to be the same finance companies after the mergers?" Wirot said.

''If the regulations remain ambiguous, it would be wise for the finance companies to get themselves fully ready for the mergers, but they should refrain from putting themselves up for registration until they are certain about what kind of financial services they will be allowed or not allowed to do after the mergers."

Charn Srivikorn of Securities One believed that as a result of the regulators' merger package and other measures to cure the financial turmoil, confidence will return. Securities One's research, in conjunction with Morgan Stanley, indicates the Thai economy is approaching the bottom and is likely to recover gradually in the fourth quarter of this year.

In the first half of 1997, corporate earnings will not look good because the financial sector is undergoing a structural change on the back of a downward revision of the economic growth at 4.8 per cent. However he showed confidence that things will look better in the second half of the year. ''Corporate earnings may show some sign of an upward trend in the third or fourth quarters," Charn said.

On a regional basis, Thai bank stocks are cheap since their prices have been drastically adjusted downwards over the past two years, making them attractive to the foreign investors. Charn said over the past four weeks foreigners have gradually built up their holdings in Thai bank stocks, believing in the ability of the Thai economy to muddle through.