represents an important effort by supervisors to integrate modern risk - management practices with regulatory capital requirements. we are pleased that the four federal banking agencies have reached consensus to move ahead with the process for basel ii and the market risk update. we recognize the significance of this development to the industry, the congress, and others who have waited for greater specificity about u. s. efforts to implement basel ii. it has taken quite a bit of work to reach this point. i would like to thank my colleagues here at this table and their staffs, as well as the fed's own staff, for their tireless efforts. overview of proposed rulemakings the basel ii npr is designed to improve the risk sensitivity of u. s. bank regulatory capital requirements and to enhance the risk - measurement and - management practices of large, internationally active u. s. banking organizations. the npr is based on the 2004 capital adequacy framework released by the basel committee on banking supervision. that framework contains the now - familiar " three pillars " of minimum capital requirements for credit and operational risk ( pillar 1 ), supervisory review ( pillar 2 ) and public disclosure ( pillar 3 ). as you are aware, the agencies propose to adopt all three pillars in the united states. in pillar 1 as proposed by the basel ii npr, only the most advanced internal ratings - based approach ( a - irb ) for credit risk and the advanced measurement approaches ( ama ) for operational risk would be available, and the framework as a whole would be required only for the largest, most complex, internationally active u. s. institutions. in contrast, in many other countries all banking organizations are required to adopt basel ii because basel i will be dropped when basel ii takes effect. to make basel ii appropriate for the wide variety of financial institutions, three credit risk and three operational risk approaches were developed in the 2004 framework. the a - irb approach for credit risk in the basel ii npr requires institutions to estimate key risk parameters for each type of credit exposure, subject to supervisory review, and to calculate a capital requirement by using those risk parameters as inputs. the ama approach for operational risk requires institutions to calculate a capital requirement based on their individual operational risk profile - again, subject to supervisory review. the basel ii npr also specifies, as part of pillar 2, that each institution must develop a rigorous internal process for assessing its overall or total capital adequacy in relation to its risk profile for other types of risk and through economic cycles

systemic risk in the banking system, particularly through credit cycles. in sum, basel ii will establish a more coherent relationship between regulatory measures of capital adequacy and day - to - day supervision of banks, enabling examiners to better evaluate whether banks are holding prudent levels of capital given their risk profiles. continuing the implementation process the agencies'proposed rulemakings, representing our view about how basel ii should be implemented in the united states, are being published in the federal register for review by the industry, the congress, and the general public. the core goal of basel ii, as noted earlier, is to promote the stability of the u. s. financial system by ensuring the safety and soundness of u. s. banks. as chairman bernanke has said, the ability of basel ii to promote safety and soundness is the first criterion on which the proposed basel ii framework should be judged. the agencies have presented proposals and will now engage in a continuing dialogue with all interested parties as to whether those proposals meet our stated objectives and can be improved. during the entire process to develop our proposed rulemakings, the agencies have been engaged in a dialogue with the industry, the congress, and others about both the direction that u. s. basel ii implementation should take and specific implementation details. many of the comments received to date have been incorporated into our proposals. in that respect, we have been carefully considering comments received so far and discussing among ourselves how to address them. in addition, we have conducted extensive analysis of other information we have been collecting, such as the results of quantitative impact studies ( qis ), and those results have helped shape the proposals as well. in making adjustments to our proposals based on comments and new information, we have been as transparent as possible. going forward, we will seriously consider all comments on the proposals. for example, the proposals contain a number of specific questions soliciting comments in key areas. with these questions, the agencies are trying to highlight areas on which the agencies would like additional information. the agencies will continue to carefully consider all comments received and thoroughly analyze all relevant information as we work to develop a final rule for basel ii. i also want to acknowledge that the agencies have received comments from several banks and other parties suggesting that banks should have more choices with regard to both credit and operational risk in basel ii in the united states. we have taken these comments seriously and the npr now includes a specific question on whether the u. s.