sensitivity than the current basel i rules, but less complexity than the advanced approaches in the basel ii final rule. one of the main reasons we were able to complete the basel ii final rule successfully, i believe, was our renewed focus on the fundamental rationale for developing basel ii : enhancing the safety and soundness of the u. s. banking system by providing more - risksensitive capital requirements for our largest, most complex banks and improving risk management practices at those institutions. moreover, we endorsed the notion that the u. s. rule would foster international consistency and be less burdensome on banks if it adhered more closely to the international basel ii framework finalized in 2006 – and if it also aligned as closely as possible with what banks themselves were doing for risk management. these were principles that i emphasized as i represented the federal reserve in interagency discussions, and i believe my counterparts shared these views. perhaps our ability to refocus stemmed from a fresh set of comments received on our proposals, our renewed commitment to getting things right, and the infusion of some new approaches brought to the table. regardless, we of course owe a huge debt of gratitude to our predecessors, who broke the hard ground in the long u. s. rulemaking process. reasons for adopting basel ii i would like to return briefly to our reasons for adopting basel ii, since it is useful to remember why we undertook so much effort to see it through. while the existing basel i capital regime was a major step forward when introduced in 1988, it has become outdated for large, complex banking organizations. retaining basel i for these institutions would have widened the gap between their regulatory capital requirements and their actual risk profiles, generating further incentives for regulatory arbitrage to take advantage of that gap. in contrast to the simple risk - bucketing approach of basel i, in which exposures to obligors of varying creditworthiness were given the same capital treatment, the new basel ii rules require banks to distinguish among the credit quality of individual borrowers. for example, under basel i almost all first - lien residential mortgage exposures are subject to the same risk weight regardless of the borrower's creditworthiness, whereas basel ii provides for a more refined differentiation of low - versus high - credit - quality mortgage borrowers. likewise, basel i is inadequate for dealing with capital markets transactions such as highly structured assetbacked securities. basel ii, on the other hand, provides a much more refined approach by requiring banks

right for the riksbank in recent years ) sunday column, dagens nyheter, 2 november. woodford, michael ( 2012 ), inflation targeting and financial stability. nber working paper no. 17967. yellen, janet l. ( 2014 ), monetary policy and financial stability. speech at the 2014 michel camdessus central banking lecture. international monetary fund, 2 july. bis central bankers ’ speeches figure 1 repo - rate paths at the monetary policy meeting in july 2011 per cent repo rate majority alternative path source : the riksbank figure 2 the riksbank ’ s and the national institute of economic research ’ s repo - rate paths in summer 2011 per cent repo rate the riksbank, ppr july 2011 nier, june 2011 note. the repo rate and the riksbank ’ s forecasts refer to quarterly averages. the national institute of economic research ’ s forecast refers to the repo rate at the end of the year. sources : the national institute of economic research and the riksbank bis central bankers ’ speeches figure 3 price developments for houses and apartments index : january 2005 = 100 source : valueguard figure 4 lending to swedish households annual percentage change note. refers to the mfis ’ lending to swedish households including hios ( households non - profit organisations ), with a home as collateral, adjusted for reclassification and bought and sold loans. source : statistics sweden bis central bankers ’ speeches figure 5 gdp per capita and employment rate compared with pre - crisis figures change in per cent 2007 – 2013 and 2008q1 – 2014q2 ger jpn gbr bel employment rate - 2 ita ned nor fin - 6 fra eu sui aut nzl swe can aus usa - 6 - 2 den por - 10 - 10 irl - 14 - 14 esp - 18 - 18 gre - 22 - 22 - 23 - 18 - 13 - 8 gdp per capita - 3 note. gdp per capita, annual data, constant 2005 usd ( adjusted for purchasing power parity ), 2007 – 2013 ; employment rate, 15 – 64 years, 2008q1 – 2014q2. seasonally - adjusted data. sources : the oecd and the world bank wdi figure 6 unemployment and labour force in sweden and the usa percentage of labour force and percentage of population united states, unemployment ( left scale ) sweden, unemployment ( left scale ) united states, labour force ( right scale ) sweden, labour