uncomfortable with the use of external ratings in their countries, they may opt to weight all corporate claims at 100 %, while sovereigns and banks can be risk weighted according to the risk scores of export credit agencies. this eliminates the dependence on ratings issued by external credit agencies. indeed, our discussions with colleagues and counterparts from countries outside the committee, including india, as i mentioned, have been instrumental in addressing other concerns in the capital framework. thanks to our consultations, we have endeavoured to address several other broad issues in the new framework, including the document ’ s apparent complexity and the consistency of its application internationally, which i will set out now. complexity one inevitable by - product of designing a comprehensive three - pillar framework with a range of options for different circumstances is increased complexity. the members of the basel committee certainly recognise that it is far easier to enforce a simple rule than a complicated one. however, the balance that we seek is between simplicity and risk sensitivity : indeed, the banking industry has been quite clear in saying that we should not blindly pursue simple solutions if they would result in unnecessarily conservative estimates of capital requirements. achieving a balance between simplicity and risk sensitivity is particularly difficult in an industry like banking, where a culture of constant innovation makes it a tall order for regulators to develop simple rules that fit all banking products and services in all their permutations. paraphrasing einstein, we might say that a good capital framework should be as simple as possible, but not simpler. so while basel ii is admittedly a more complicated document than the 1988 accord, i would suggest that much of its apparent complexity stems from the diversity existing in real world. the text provides multiple options in part because some banks and supervisors thought that a “ blanket rule ” would unfairly burden them. by providing a range of options, we are better able to fit the regulatory framework to each bank ’ s risk profile, rather than the other way around. similarly, some of the complexity in basel ii stems from the details we provide to promote a more level playing field. many bankers and supervisors asked the committee to provide greater details where they thought a danger existed for differences in interpretation to arise across jurisdictions. nonetheless, we have worked hard over the past years to clarify the rules, to simplify those thought to be the most complex, and to provide options for those wishing to use a simpler approach. in fact, as the basel committee demonstrated in an annex to the third consultative paper, supervisors can select

supervisors is clearly the most important tool in achieving an appropriate level of consistency. the committee has established a working group of supervisors, called the accord implementation group, or “ aig, ” that shares information on implementation efforts among basel committee member countries. the aig works with other supervisors as well, including through the core principles liaison group, a group of supervisors from many other countries that shares views and exchanges information. by promoting the sharing of information on practical issues, the aig ’ s discussions will help to foster greater consistency in the implementation and application of the new framework across countries. conclusion i now look forward to hearing some additional perspectives from our panellists on basel ii and especially their thoughts on its implications for the indian banking sector. as i have stressed in my remarks, basel ii is intended to reinforce our focus on risk and to encourage all of us to improve our skills in measuring and managing those risks. in one sense, then, basel ii might be considered an effort to re - invigorate the risk management culture in the banking sector. i believe that basel ii provides banks with the incentives necessary to encourage them to improve their risk management systems and processes. at the same time, the new capital framework will help to ensure that capital supervision continues to serve as a cornerstone to safety and soundness in the banking system. both results will help to make banks more resilient, less sensitive to the ups and downs of the business cycle, and better able to serve as a source of credit and growth for businesses and consumers. those benefits are worthy of our continued hard work. thank you for your attention.