new set of capital rules. rather, basel ii is intended to enhance the quality of risk management. to achieve this goal, basel ii must be built on the foundation of a sound supervisory system. such a foundation includes having successfully implemented the basel committee ’ s “ core principles for effective banking supervision, ” including the provisions on operational autonomy of the supervisory authority, adequate supervisory resources, regulatory and remedial powers, and a sufficient legal framework. likewise, sound accounting and provisioning standards are critical to ensuring that the capital ratios - however calculated - reflect meaningfully the bank ’ s ability to absorb losses. establishing a solid foundation of sound supervisory, legal, and accounting systems constitute the essential first stage of the process of moving to the new supervisory framework. secondly, i would encourage supervisors to consider how the three pillars of basel ii could already be enhanced in their jurisdiction. supervisors do not need to await their formal adoption of basel ii to start introducing or using the principles of the three pillars. on the contrary, incorporating those principles is excellent preparation for adopting basel ii in the future. for example, supervisors might be encouraged to move towards a system of risk - based supervision, developing skills in assessing the quality of a bank ’ s risk management and its ability to assess risk exposures. at the same time, banks could be reminded of their responsibility to develop their own processes for evaluating their capital needs and a strategy for maintaining their capital levels, in line with the principles of pillar 2. with regard to the principles of market discipline in pillar 3, supervisors in some countries may wish to focus initially on ensuring a baseline level of disclosures across all banks. this might include discussing with banks, investors and other users of financial information their information needs and the tools available so that supervisors can tailor requirements accordingly. in my view, these two preliminary stages will provide an excellent preparation for the “ final ” stage to move to basel ii. the basel committee welcomes the efforts that so many countries have already undertaken to enhance the quality of bank supervision and to encourage prudent management in the banking sector. we support your work and would like to contribute to your efforts. the basel committee, its member agencies, and the financial stability institute of the bank for international settlements have long participated in regional training initiatives that are intended to help promote supervisors ’ understanding of international banking standards such as the new capital framework. the committee ’ s accord implementation group likewise engages in outreach to supervisors in non - member countries, including through the core principles liaison group.

disintermediation will involve significant benefits for society ; but it is not free from challenges for banks, for the regulator and, naturally, for the banco de espana itself, in its role as guarantor of financial stability. among the benefits for those demanding funds, associated with a more diversified financing structure, are, on one hand, their greater stability in the face of shocks that affect specific institutions in the financial sector. indeed, the international financial crisis highlighted the greater difficulties in gaining access to funding for those firms depending exclusively on bank lending, in contrast to those with a more diversified financial structure. these problems were more acute for those firms – chiefly smes – operating with a small number of banks more harshly affected by the crisis, since the possibilities of replacing their usual lenders with new banks was not always easy owing to asymmetrical information problems. 4 / 7 on the other hand, the development of non - bank funding sources may also contribute to providing readier financing for specific investment projects ; for instance, those undertaken by innovative or newly created firms, for which the availability of bank lending may be more limited. it should be borne in mind that the launch of some of these projects may have a positive impact on firms ’ productivity growth. naturally, these advantages for those demanding funds may have positive effects for society as a whole, insofar as they result in higher and more stable economic growth. from the standpoint of fund suppliers, the existence of alternative means of investing their saving may result in more attractive return / risk combinations for various savers, depending on their needs and preferences. so that households and firms may benefit fully from all the advantages of banking disintermediation, they will need to have sufficient financial knowledge. this is something that the banco de espana, along with other bodies such as the cnmv, is firmly committed to through financial education programmes such as “ finance for all ”. evidently, disintermediation poses substantial challenges for banks. greater competition from non - bank intermediaries may affect both banks ’ business volumes and net interest income. this potential loss of income is significant at the current juncture, at which banks are posting modest levels of profitability, the economy is slowing and private - sector demand for funding remains sluggish. in response to this more competitive and challenging environment, banks could adopt various strategies such as greater income diversification, the containment of operating costs and increased investment in technology. from the regulatory standpoint, the