Yet allow me to emphasise that, in parallel, central banks have strengthened transparency by providing the general public with extensive information about the rationale behind these monetary policy measures within our existing mandates. In particular, in the case of the Governing Council of the ECB, the accounts of our monetary policy meetings are published and the President and Vice-president hold a joint press conference with a Q&A session after each decision. In addition, members of the Governing Council routinely engage in public events and deliver speeches to explain our decisions and the rationale behind them. And, of course, the President of the ECB regularly participates in sessions with members of the European Parliament as do governors of national central banks in their corresponding parliaments. I deem it essential to persevere in this direction to reinforce the democratic accountability of the central bank. In communication with the public, central banks should carefully balance the need for clarity and the intrinsic complexity of monetary policy decisions. To strike the right balance it is worth noting that transparency does not mean providing certainties on intrinsically complex issues but clarity on the inevitable uncertainties and trade-offs that affect monetary policymaking. An added difficulty in the euro area is having to communicate to citizens from 19 different countries in which public opinion sometimes focuses more on national affairs than on European issues. On top of high transparency standards, we should explore additional tools that could contribute to reinforcing the legitimacy of an independent public institution.

The Basle Capital Accord of 1988 was a landmark document for the banking industry. It helped increase the capital held by internationally active banks, and created a more level playing field for banks under different jurisdictions. However, there were some weaknesses in the Accord. The most important of these was the practice of assigning the same risk weight to all counterparties in each class, irrespective of the differences in their credit-worthiness. These issues led regulators to propose a more risk sensitive framework. The proposed new Capital Accord will have a great influence on the risk management practices of banks. The new Accord, however, poses challenges to Asian banks and regulators alike. Banks will have to develop more sophisticated risk management capability while regulators will need to build up technical knowledge as well as supervisory resources to validate banks’ risk management systems. As financial markets progress towards greater transparency, the market disciplinary mechanism will reward banks that manage their risks effectively, and penalise those that do not. Good risk management practice is thus even more essential for banks to maintain their competitiveness over the long run. The frequency of shocks has increased. In the past 10 years there has been an average of one shock every year starting from the Gulf War in 1991 to the Latin American crisis of the early nineties and so on down to the Asian Economic Crisis in 1997, the Russian Bond Default Crisis in ’98 and most recently last month, Argentina’s default. The causes of these stress events are wide-ranging.