With tighter control over processes, information systems, operations and risk, French credit institutions should be able to cope with future developments  Aside from the cyclical aspects I have just mentioned, the short-term outlook is characterised by both the increasing interplay between the financial and non-financial spheres, owing to the development of new risk-transfer instruments, and by closer harmonisation of the rules applicable to different economic agents. 3.1  Careful attention must be paid to the characteristics and consequences of risk transfer transactions  Credit derivatives, and products and techniques like securitisation that produce similar results, are a means of reducing the loan-loss exposure of credit institutions, which are net risk-sellers. These instruments can be useful for mitigating risk exposure, provided naturally that banks act as protection buyers. However, the characteristics and consequences of the development of these products must be closely scrutinised, both by credit institutions operating in these markets and by the authorities responsible for maintaining financial stability. Institutions must pay particular attention to the real impact of risk transfer. They must also keep close watch on the resulting counterparty risk that attaches to the protection seller. The question of risk transfer is also under scrutiny because of the treatment of the special purpose vehicles to which assets are sold. On this point, the accounting rules currently under review at the international level seem to focus quite rightly on the reality of risk transfer. Credit institutions must therefore analyse this criterion in greater detail.

Accordingly, it is clearly important that credit institutions should actively pursue the work they have done so far. In this respect, I think it is safe to say that French banks operating in the international arena are making every effort to ready themselves for 2006. 3.3  New accounting standards should foster international harmonisation and promote greater financial transparency  The introduction of new accounting standards is a major undertaking for companies in general and for credit institutions in particular. The aim of this project is highly ambitious, namely to arrive at worldwide standards that can improve financial security and accounting transparency. This is necessary to restore confidence in financial markets. At the internal level, credit institutions must quickly adapt their information systems to these new requirements. However, there are in-depth discussions at present about the draft standards applicable to financial instruments. We have taken part in these discussions and advocated caution, in particular, in view of the strong temptation to give precedence to the markto-market and mark-to-model approaches, which are more sensitive to calculation parameters than to the actual situation of the reporting entity, with the result that earnings and equity likely to become abnormally volatile. I hope that the outcome of these discussions will lead to accounting procedures that take into consideration the realities of credit institutions’ operations and business practices. BIS Review 32/2003  3  As you are aware, the quality of the accounting rules applicable by banks is of fundamental importance for supervisors.