To accommodate various stages of development in thinking and risk modelling, the New Accord offers three approaches for calculating a minimum operational risk capital charge. Two approaches - the Basic Indicator and Standardised Approaches - are, by design, simple and so inevitably are somewhat imprecise measures of operational risk. But when combined with the supervisory review process of Pillar Two  2  BIS Review 45/2003  and the transparency requirements laid out in Pillar 3, the Committee believes that they offer a reasonable point of departure and will spark additional efforts to refine banks’ approaches. For the most sophisticated institutions, the “advanced measurement approach” - or “AMA” - is the ultimate expression of the Committee’s goal to incorporate banks’ own sense of risk into the capital framework. Because the AMA is not subject to supervisory “floors,” the Committee expects it to serve as a true catalyst for innovation. We were pleased that the RMA Working Group on the Regulation of Operational Risk and others in the industry welcomed the Committee’s decision to allow banks to test a great variety of methodologies and measures under the AMA. Results of consultations From our review of public comments, and from our member agencies’ recent discussions with banks, we have noted a growing consensus that the revisions to the proposals have been positive. The operational risk framework has become more flexible, forward-looking, and better able to accommodate today’s best practices. Moreover, we are confident it is nimble enough to incorporate future advances.

In the first half of 2008, strong increases in commodity prices accompanied by signs of rising wage pressures and an upward drift of inflation expectations implied that risks to price stability over the medium term were increasingly on the upside. To counteract these upside risks and ensure the solid anchoring of inflation expectations, the Governing Council of the ECB raised its key interest rates by 25 basis points in July 2008. With the intensification of the financial turmoil from mid-September last year, the macroeconomic situation and outlook changed fundamentally and suddenly. As the financial crisis deepened and broadened, global demand and economic activity weakened substantially, commodity prices declined markedly and, as a result, inflationary pressures and risks in the euro area diminished. Monetary growth and the expansion of credit to the private sector decelerated, confirming that upside risks to price stability were abating. In response, the Governing Council lowered the key ECB interest rates decisively, by an unprecedented 300 basis points between October 2008 and April 2009. The Governing Council will continue to do what is necessary to preserve price stability and ensure the firm anchoring of inflation expectations over medium to longer-term horizons. Such anchoring is indispensable to supporting sustainable growth and employment and also contributes to financial stability. Let me also stress that, from the onset of the financial market tensions, the ECB has taken forceful action in its liquidity management, also through non-conventional measures, to make sure that banks are able to refinance themselves.