bond issuances with prevailing market conditions. in this way, liquidity shortages and excessive price hikes on the market were to be prevented. as time went by and bond markets got more mature, the cooperative work of the capital market commission was replaced by yearly and quarterly issuance calendars for sovereign bonds. a second aspect of the operational role of central banks concerns engaging in market management. in terms of market management, the bundesbank ’ s strategy has always been clear - cut. in 1957, the bundesbank law stipulated that the issuer of a bond is responsible for market management and market smoothing operations. indeed, the bundesbank has since conducted market management for federal government bonds ; but we have done so on behalf of the government, not on our own behalf. let me stress here that the bundesbank ’ s approach is just one of many, and that there is no right or wrong approach. this is only one way in which a central bank is able to maintain independence and avoid fiscal dominance. this brings me to the third aspect of the facilitation role that the german central bank opted for. in the early stages of capital market development, market management of sovereign bonds can be crucial for many reasons. one main reason is that financing conditions in most credit markets critically depend – usually via price quotations – on the price that the sovereign has to pay for its debt. in other words, a central bank ’ s market management for government bonds can facilitate the establishment of a benchmark debt yield curve. and a sound benchmark is key to a functioning overall bond market. that is how we did it. and there might be a lot of other ways of doing it. i want to emphasise again, however, that when embarking on the development of domestic bond markets, every central bank should be wary of trading its institutional independence for market involvement. because providing the sovereign with market management services always entails the potential of exposing the central bank to unwanted fiscal pressures. 5. conclusion ladies and gentlemen, what can the german experience teach us? first, it can teach us that the political will to enhance local currency bond markets needs to be accompanied by a number of supporting factors. a well - balanced regulatory regime and a stable currency – defended by an independent central bank – certainly are among these factors. second, while i am convinced that regulation and central bank independence are universally valid, the concrete strategy a country ’ s central bank may follow in promoting local currency bond markets is

that external ratings awarded by rating agencies pursue different objectives – namely, a more long - term orientation towards the entire credit cycle – from internal bank ratings. the topic of “ completeness ” is naturally also of great significance in the case of internal bank systems. i assume that “ partial use ” will also be possible here. to that extent, the rating would then be incomplete. ladies and gentlemen, the debate on a rapprochement of the prudential to the economic capital of banks by the deployment of management instruments of their own naturally involves uncertainties and risks. the “ self - assessment ” by the banks planned for a substantial part of the risks in the computation of the capital to be maintained in respect of the risks incurred therefore calls for a supervisory audit of the internal bank methods used. it is at this point that the two other pillars of the new accord come into play. in particular, banking supervisors will be obliged – as stipulated by the second pillar of the discussion paper ( the supervisory review process ) – to gain a clear idea at first hand of the instruments used in banks ’ risk controlling and risk management. that applies all the more since the market can hardly function as an external monitoring body for internal bank ratings. vii ladies and gentlemen, it is not only at the international level that a “ level playing field ” must be ensured. that is scarcely less important at the national level as well. as you know, the basle accord is primarily applicable to internationally operating banks. on the basis of the basel proposals, the same subjects are being addressed in brussels, too, so that ultimately the entire banking sector will be affected by the regulations. after the implementation of a corresponding eu directive, those provisions will be binding on all credit institutions within the eu. we advocate, firstly, that the final regulations should coincide in brussels and in basel, and should come into effect at the same time. by that means, a duplication of efforts should be avoided by those credit institutions which will have to apply both sets of regulations. secondly, it is our aim that, in principle, all institutions – regardless of their size – will be able to apply the new regulations. hence, we welcome the efforts being made by the banking associations to assist their member institutions in implementing internal rating systems. it would be conceivable, for instance, for certain demands of the rating process ( e. g. the collection and processing of data ) to be satisfied centrally by the associations. that naturally gives rise to questions