most common issues which have been raised. first of all, the complexity of the proposals. this has also been raised in the past, and is, i think, a valid concern. at the same time, we mustn ’ t forget that many of the areas of the new accord have expanded in size and complexity precisely as a response to calls from the industry for different types of business to be more finely reflected. another key issue, mentioned in many comments, is the need to maintain a level playing field. the committee is very conscious of this matter, and i will say something about our efforts in this respect a little later. finally in relation to the general issues raised in the comments, i would mention fears of over - conservatism in the proposals when taken as a whole. i would like also to pick out a few of the more technical comments on cp3. for example, one issue, a high - level issue, which has also received a lot of attention, is the calibration of capital requirements to expected and unexpected losses. we have also received many comments on the securitisation proposals, on the issue of “ double default ”, on the incentive structure and on the recognition of insurance within the operational risk proposals. after five years of work, the process has reached a critical stage. leading market participants and supervisors alike have long understood that sophisticated banks have “ outgrown ” the 1988 accord and are in need of a more refined regulatory capital regime, and we have all worked extremely hard to achieve this. so it is important to finalise the new accord, and open the way to its effective implementation. to that end, as i have already said, we appreciate the candour and thoughts that members of the iif and other institutions have shared with the committee and its working groups over the years. we are studying your latest letters and suggestions carefully. as you will have gathered from my earlier summary, many comments have focused, as in the past, on the minimum requirements laid out in pillar 1, but as we get closer to finalisation, comments about implementation are becoming more important. i would like to take a few minutes now to talk about these other aspects of the new accord that deserve equal consideration. let me address four specific issues : · pillar 2 and consistency · home / host implementation issues on a world - wide basis · accounting standards and basel ii · the recognition of diversification pillar 2 and consistency on the first of these subjects, as you well know

ii i would like to turn now to the third topic on my list. one trend in the market environment that we must track concerns the increasing harmonisation in accounting rules and practices internationally. the iif has quite correctly noted the need to align the supervisory framework more closely with the emerging framework for harmonised accounting guidelines. a greater “ meeting of the minds ” is warranted especially now that the new basel accord includes explicit disclosure requirements intended to promote greater insight into a bank ’ s risk profile. yet as the institute ’ s comment letter reminds us, there are also other areas of the new accord, such as its treatment of provisions and the valuation of financial instruments, where supervisors and accounting professionals should continue to work toward convergence. we think that in order to contribute to financial stability, accounting standards should be consistent with sound risk management and control practices in banks and should facilitate market discipline. the committee has, therefore, attached great importance to taking an active role in the international debates on accounting and to promoting the supervisory perspective on key accounting issues. the committee has consulted extensively with representatives of the accounting profession and this dialogue will continue. i should add that we are interested in pursuing new opportunities for discussion on issues of mutual concern with accounting - standard - setting bodies and private sector accounting professionals. in this respect, we very much welcome your initiative to enhance this important dialogue. recognition of diversification an area of change that capital rules must mirror is the constantly evolving state of the art in risk management. the 1988 accord became outdated to a large extent because it was a relatively simple and static document : its one - size - fits - all approach to capital regulation represented an important advance as a universally accepted standard, but it did not provide a means to recognise more advanced risk measurement techniques. it quickly fell behind as the pace of innovation in technology, financial products, and markets accelerated. in response, the committee designed the new accord to be a more flexible document and one that would be more welcoming of improvements in risk management techniques. its evolutionary approaches to credit risk and to operational risk, for example, give banks a range of options to choose from and create explicit incentives for banks to strive to adopt the most advanced approaches. the new accord still has its limits, however. members of the iif and others have cited as an example the failure to recognise use of full credit risk models, which would adjust a bank ’ s capital requirements in accordance with the benefits of diversification in its balance sheet. as you know, the committee evaluated proposals