All these elements will ensure that bank managers are conscious of how risk-drivers change through the cycle and in stress conditions, and that they incorporate these elements into their decision-taking processes and capital strategies. Let me move now to the work under way to implement the new framework. I’d like to highlight two areas in this respect. 3. Catalytic role in promoting supervisory co-ordination and convergence  The effective implementation of Basel II will depend to a large extent on the ability of “home supervisors” and “host supervisors” of internationally active banks to co-operate efficiently. Certainly one of the goals for any international framework is to foster a more level playing field for internationally active competitors. The Basel Committee wishes to ensure that competition between internationally active banks is driven by each bank’s individual strengths, rather than by differences in each country’s rules. Basel II is intended to promote a more level playing field for internationally active banks. Yet Basel II cannot and should not be expected to create perfect harmonisation across all jurisdictions. Differences in legal systems, market practices and business environments in each country make it an extremely difficult task - and, indeed, an impossible one - to even out all distinctions across all borders. Our goal should instead be to facilitate the application of minimum standards and to work together, across borders, to promote a more consistent implementation and application of the new framework. This enhanced co-operation is a process that will promote consistency and convergence of supervisory practices.

This legislation will not only affect the banks that we supervise, but also our own supervisory system and the tools we use to carry out our responsibilities, so I hope my additional perspectives will be useful. The publication of Basel II in June 2004 was a milestone which marked the culmination of a worldwide and unprecedented effort spanning more than five years. It involved extensive and open discussions among bankers, central bankers, bank supervisors, market observers, and the public. The Basel Committee published three proposals for public comment. It conducted several impact studies and it engaged in extensive discussions with interested parties. I believe that this broad and often highly technical dialogue was of mutual benefit as a learning process. It contributed greatly to the thorough examination of banks’ risk management practices. This was necessary in order to find ways to harness recent advances in these practices to promote financial stability. It also allowed us to take into account concerns and suggestions and to make a considerable number of changes that have significantly improved the framework. Let me mention, for example, improvements made in important areas such as SMEs, procyclicality, complexity, recognition of collateral, and the treatment of securitisation, etc. Likewise, the global nature of the consultations led to changes which increased the relevancy of the new framework to all kinds of banks, something that is important for the European market. As a result of the dialogue, we were able to design a solid, comprehensive and balanced new capital framework.