banks does not deal with the issue of removing excess banking capacity nor does it discourage the repetition of similar mistakes. second, what process should be used to determine which banks need to be closed, or merged, and which can continue to operate on a recapitalized basis, probably with new owners and managers? third, how much support should the government provide, through guarantees for example, to purchasers of nonperforming loans? our experience in the united states indicates [UNK] that the scale of such support, however structured, must be commensurate to the problem. finally, and by no means least important, we must consider how official assistance can be structured, if at all, to minimize moral hazard. do we understand how to achieve burden sharing with the private sector? a critical point, though, is to act decisively to restore market mechanisms and place nonperforming assets in the hands of those capable of putting them to greatest use. allowing a serious problem to languish can be a great and costly mistake. conclusion in conclusion, we know that the banking industry plays and will continue to play an important role in the global market place. unfortunately, a combination of poor banking practice, weak supervision and a number of macroeconomic shocks can destabilize a banking system. the solutions might include bank supervision at the best international levels, greater transparency, and, perhaps, some interference with capital flows. when a banking system becomes insolvent, however, there is no substitute for stripping away the bad assets in order to allow banks to once again perform their special role in society. who bears the costs and how to ensure market discipline may be the most important issues to be addressed in that solution. unfortunately, given changes in technology and global economic forces, i am sure that we will not stop discussing the issue of banking crises. i appreciate the chance to share these thoughts with you this evening. [UNK]

unit management processes. in other words, the business - line staff should be in the process of developing the firm - wide operational - risk measurement framework. while firms generally are developing corporate - level operational - risk management functions and firm - wide policies and procedures to bring greater consistency to how operational risk is measured throughout the institution, business - line staff can add significant value to this effort through their understanding of inherent risks and controls in their areas. and finally, the more business - line staff is involved in the development of the measurement framework and the more transparent the framework is, the more credible will be the process of allocating the total capital number back to the business lines - an effort in which many of the banks represented here today are now engaged. to be meaningful, the quantification of operational risk must be forward - looking. this means that a mechanical focus on historic loss data series will not work. we must recognize the roles of qualitative factors and a well - reasoned assessment of what we will call stress events or scenario analysis. in this regard, the burden is on management to exercise judgment. clearly, this judgment must include consideration not only of a soundness standard but also of contingencies and actions taken to reduce the risks posed by those contingencies. a self - assessment of the internal control structure and overall risk - management process is crucial. clearly, this is not a simple process if the results are to be relevant to the specific risk profile of the firm. but based on the progress we have seen to date in this area, i think you are up to the challenge and i encourage you to keep moving forward. before i wrap up, i would like to say a few words directly to the potential " opt - in " institutions. an institution that does not meet the mandatory criteria in the framework will be under no obligation to adopt basel ii. some potential opt - in institutions have complex and varied operations and are developing enhanced enterprise - wide risk - management processes and systems to strengthen their internal control environments. these institutions understand that complex operations receive a more structured and well - defined risk - management framework to monitor the effectiveness of internal control processes and risk exposures. for these organizations, the incremental cost to opt into basel ii advanced approaches will be a relatively moderate incremental cost. for other financial institutions, with a simpler organizational structure and less - complex processes and services, a less - sophisticated enterprise - wide risk - management and - measurement is entirely appropriate. for these organizations,