subject to additional strain or may even see some relief. and that is not an undesirable side - effect of the reform, but its main achievement. the idea behind the basel reforms is ultimately to create incentives to encourage responsible bank governance. and the best way to do this is by means of risk weighting. these incentives do, of course, work in both directions : they make certain activities more expensive and make others more attractive. on the whole, i am convinced that all banks will benefit in future from a fairer distribution of the capital requirements within the banking sector. furthermore, the successful implementation of the reform package can help to further calm the markets. it will certainly pay off ; last year we did, after all, see growing fears that european banks were undercapitalised, which meant that their risk premiums continued to climb. ladies and gentlemen, basel iii is not designed to make life difficult for you and your institutions. on the contrary : in the long term, i am convinced that that the entire banking sector will benefit from better rules. that is why the current debate about deregulation in the united states gives me cause for concern. if the americans do not implement the basel iii framework, we europeans will certainly not introduce the new rules unilaterally – and the whole world will suffer the consequences. we learned this lesson from basel ii. of course, i understand that the many regulatory changes over the last few years involve a great deal of effort and that smaller institutions, in particular, are finding them cumbersome. and i am firmly convinced that the basel iii rules do not need to be applied wholesale to small, regional banks. that ’ s why i am pleased to see that the debate about greater proportionality in banking regulation is gaining momentum in europe. we should therefore take an unbiased look at whether the basel iii framework really should apply in full to all banks and savings banks in germany, or whether a less strict approach, in the form of exemptions for smaller institutions, would make sense. by this, i mainly mean exemptions relating to operational requirements. exemptions from capital and liquidity requirements, on the other hand, cannot and must not be made, in the future as in the past. but that ’ s the subject of a different debate. and that debate must not be used as a pretext to do away with basel iii. because today ’ s financial system is not constrained by borders, we need strict global regulatory and supervisory standards

steep learning curve in familiarising themselves with the basic concepts and techniques on which the irb approach relies, and need to become more conversant with these types of risk management technique. a particularly important issue to consider that is highly relevant to today ’ s event is the standards that bank supervisors will apply in deciding whether or not to approve a bank to use the irb approach. to ensure that the capital charges computed by the irb systems are sufficient for banks to withstand the credit risks they have incurred and to absorb the potential losses resulting from borrower defaults, the estimates of the risk components must be accurate in capturing the relevant aspects of risk. as a consequence, validation of banks ’ estimates of the risk components, and the underlying internal rating systems, is crucial to the implementation of the irb approach. this is one of the greatest implementation challenges confronting bank supervisors in asia, where the development and understanding of the irb approach by banks is generally still at an early stage. no matter what supervisory approach you take in respect of irb validation, it is only one of the major questions to which we need to find an answer. banks and their supervisors in asia are going to face a variety of challenges ahead in the implementation of the basel ii irb framework. through today ’ s outreach event, i hope that there will be stimulating discussions on these issues and that participants will be able to take away ideas that can help them make the implementation of the irb framework in their jurisdictions a success. i also hope that the aigv, the aig and the basel committee can take account of the views of the asian region, and of the particular issues we face. thank you.