Stress testing should help banks to maintain adequate capital buffers in advance of potential downturns in the economy. The treatment of operational risk Beyond those two broad concerns expressed about the potential for complexity and procyclicality, some respondents have called for changes to more specific capital charges in the proposals. One of the most interesting discussions centers on whether – or how – the New Accord should treat a bank’s exposure to potential losses that result from inadequate or failed internal processes and systems, or from external events. The endeavor to manage operational risk, as this group of risks has become known, has sparked significant research in the industry and beyond. Supervisors, like more and more banks, have adopted a view of operational risk management as a comprehensive practice comparable to the management of market or credit risk. While operational risk cannot be quantified with the same degree of precision as market or credit risk, the Committee believes that introducing a separate charge for exposures to  4  BIS Review 52/2002  operational risk will bolster efforts to find better ways to address it. Failing to include an operational risk charge in the new minimum requirements could inadvertently derail the ongoing work to identify and manage this exposure. Although we’ve seen encouraging progress in measuring operational risk – within both individual firms and industry working groups – the Committee recognizes that the industry has not settled on particular methodologies or principles.

Additionally, we will cultivate further our staff’s ability to evaluate advanced risk measurement and management methodologies for operational risk, especially because so much of that work centers on advanced statistical analysis. Externally, the Committee anticipates providing more assistance, both formally and informally, to other supervisory agencies that are preparing for the added responsibilities we will all assume as the New Accord comes into force. Moreover, I am pleased to note that the Financial Stability Institute will continue its collaboration with the Basel Committee, especially in assisting supervisors globally in understanding and implementing all aspects of the revised Accord. The "FSI" anticipates that more than half of its 40 seminars and programs in 2003 will concentrate on components of the New Accord. In fact, shortly after the release of the Third Consultative Document next year, the FSI intends to offer three special seminars around the world to introduce other supervisors to the most important features of the new framework. 3. Working toward consistent implementation: Accord Implementation Group  The third area of activity will be to deepen the level of communication and cooperation among supervisors so that we implement the new rules more consistently across jurisdictions. A "level playing field" demands that international competition be driven by each bank’s strengths, rather than by each country’s rules. Within the Basel Committee itself, we’ve established the "Accord Implementation Group" as a forum for sharing information on ways to assess risk management processes under the New Accord.