will increase the importance of capital adequacy, risk management, effective supervision, and transparency in fostering and maintaining financial stability in an increasingly integrated and interconnected global financial system. indeed, supervisors and bankers need to maintain a healthy skepticism about the uncertainties and real - world vicissitudes surrounding any theoretically precise measures of risk - particularly in times of adversity, when capital cushions are so important. qualitative factors such as sound judgment, knowledge, and real - world experience are essential to successful risk management. our hope is that the implementation of basel ii will substantially improve institutions'ability to measure and manage their risks. but we expect that basel ii will complement the evolution of banks'own processes and systems, not supplant them. finally, we also anticipate that basel ii will allow for the open development of new risk - management techniques, as they evolve over time.

charges dropped more, in the aggregate, than the agencies had expected. this was the impetus for deciding to delay issuance of our next round of proposals for basel ii. the agencies'reaction to the qis4 results should signal how seriously we are taking the basel ii effort and how we are striving to implement it correctly. the results from qis4 show the continued benefit of conducting periodic quantitative impact studies. they serve as a milestone, helping us evaluate progress as we move to basel ii. we now must determine the reasons for the results from qis4. were there limits to the qis4 exercise? is there a need for adjustments to the basel framework itself? do the qis4 results reflect actual differences in risk among respondents when prior supervisory information suggested more similarity in credit quality? do the results indicate the various stages of preparedness among participants, especially relating to data availability? none of the participating banks have completed their databases and models for all of their risk areas. in some cases, this created results that could not be relied upon for the implementation of basel ii. for example, for some portfolios, losses reflected only the last year or two of results. thus, the strong credit performance of recent experience was not balanced by higher losses at other points in the credit cycle. analysis of the data used in qis4 is vitally important, because the ultimate success of basel ii will depend both on the quantity and quality of data that banks have to use as inputs to the framework and on our understanding of the limitations of those data. and as i noted before, these data are fundamental to the proper management of risk at large complex institutions, even outside the realm of regulatory capital. even though we are still in the midst of our analysis of qis4 data, we recognize that substantial data limitations may prevent banks from developing viable and robust parameter estimates in the near term. for this reason, both banks and their supervisors will have to wait while data accumulate before banks can estimate and validate parameter inputs in a reliable, robust manner. in the interim, banks and supervisors will have to rely heavily on qualitative validation approaches. supervisors across countries are working together to address validation issues, and, i believe, will develop useful guidelines for banks and supervisors alike. in addition, we will likely need certain safeguards until we have confidence in the data systems producing basel ii estimates. and qualitative and quantitative benchmarking studies, which compare methodologies and parameter estimates across banks,