Its adoption by over 100 countries has helped to strengthen the safety and soundness of the international banking system and has contributed to the achievement of competitive equality. However, the financial world has changed dramatically over the past dozen years, to the point that the Accord’s efficacy has eroded considerably. Its broad brush approach to differentiating credit risk encouraged banks to undertake regulatory arbitrage transactions. Furthermore, as banks have developed innovative techniques for managing and mitigating risk, credit risk now exists in more complicated, less conventional forms than is recognized by the 1988 Accord, thus rendering capital ratios, as presently calculated, less useful to banking supervisors. Today’s marketplace also provides an imperative for revising the 1988 Accord. The rapid pace of technological change places information that was once largely the domain of analysts and institutional investors into the hands of millions of individual investors and consumers. Market participants, armed with timely and meaningful information, reward sound risk management practices and penalize those banks that are found deficient in this area. A bank’s regulatory capital position can be a strong indicator of how it supports its risk, and if markets are to impose an optimal level of discipline on banks, we must ensure that regulatory capital measures reflect risk as precisely as possible. I believe that reform of the Basel Accord is thus clearly in the markets’ best interests. As the Committee continues to develop a more risk-sensitive capital adequacy framework, we cannot lose sight of the need to keep the Accord up to date.

Second, ensure that the IMF is adequately equipped to deal with the vulnerabilities of Low Income Countries, Emerging Market Economies and commodity exporters: GCC (Gulf Cooperation Countries), CEMAC (Central African Economic and Monetary Community) and Latin American countries have all been affected by the recent drop in commodity prices. Broad coverage requires making sure that the IMF is adequately resourced, both in terms of permanent resources, and through state contingent financing resources in case of common shocks or systemic crises. Third, there are also ways for the GFSN to operate better without the Fund extending more financing. There may be benefits in further use of “signaling” instruments, which share most of the features of regular programs but without financing. For example, countries like Sénégal or Nigeria have relied on the IMF Policy Support Instrument: this program enables low-income countries to benefit from Fund’s advice and support, which sends a clear signal to donors, creditors and markets. However, these instruments are only available for lowincome countries; there is to date no equivalent tool for emerging or advanced economies. Such instruments could help in certain situations (for instance during systemic crises) where it is essential to maintain market access and facilitate rollover of private financing. With this I would like to conclude my presentation. I very much look forward to our discussions today and to seeing the work of the IFA work stream in the coming months. 2  BIS central bankers’ speeches