and that is globalization. travelling or shipping goods around the world now takes hours, not days. information and ideas are available simultaneously to anyone who has access to the internet. wireless technology has brought telecommunication to places where phone lines cannot reach. in short, technological advances have allowed markets to expand as never before. in many ways, technology is the enabler of many of the trends leading to globalization, by slashing the costs and the time it takes to reach across borders and continents. today, we ’ re all shopping in the same global village market. consumers and businesses around the world have become the target customers of canadian firms. at the same time, our firms are exposed to new sources of competition and new pressures to innovate. perhaps the most preoccupying element of this trend towards globalization is the emergence of china as an economic powerhouse. and india is not far behind. when you consider that china and india account for 40 per cent of the world ’ s population - and that their economies are growing at annual rates of 9 and 7 per cent, respectively - it is not hard to see why they have such an impact on the global economy. china and india are now major global competitors in labour - intensive industries. increasingly, they ’ re also flexing their muscles in skill - intensive industries. asia ’ s highly efficient production capacity is prompting a transformation of manufacturing and distribution processes around the world. and the skills - based software industry in india is transforming that sector globally. so we ’ re seeing tremendous competitive pressure on industries that are the traditional mainstays of the canadian economy in general and of ontario in particular - such as automobiles and parts, steel, and other manufacturing industries. we ’ re also seeing competitive pressures transform canada ’ s high - tech sector, which has only recently emerged as an engine of growth. but the income and wealth created in china and india are increasing the ability of these countries to buy goods and services from abroad. so, their integration into the global economy represents both a competitive challenge and a tremendous opportunity. these emerging markets are just that - markets. china is already one of the world ’ s largest importers. this growing demand can provide a real boost to the canadian economy, if we gear up to meet the challenge. so, how do we meet those challenges? one way is to integrate low - cost components from other regions of the world into our own production processes, through direct investment or joint ventures. this can help to keep costs down and free up our

journey rather than a destination by itself. the journey is certainly tougher than we thought. undoubtedly, it would require commitment of substantial capital and human resources on the part of banks and the supervisors. for banks, the main challenges appear to be the skills shortages and data inadequacies coupled with uncertainties regarding costs associated with implementation. banks all over the world have started to voice concerns over the mounting regulatory costs. it is a regulatory responsibility to encourage banks to have a phased implementation programme starting from a traditional baseline scenario of identification of operational risks, assessment, and awareness monitoring and integrating these elements over a period. basle ii implementation and operational risk mitigation process puts heavy burden on supervisors to detect problems in banks, to stay on top of the latest advances in risk management and to avoid abuses of many powers that are given to supervisors. all these are too much for supervisors to bear as many of us are still on the learning curve. exchange of information both within and outside the region would be very important particularly in capacity building for evaluation and validation of risk assessment models of banks. this seminar is one such joint effort by the central bank of sri lanka and the seacen centre, which would provide a good opportunity to exchange information and learn from each other. 16. basel ii is expected to foster financial stability through its risk sensitive framework through encouragement of banks to adopt improved risk management practices. supervisors and regulators are required to review the efficiency of banks ’ risk management practices and capital allocation methodologies, and empower market participants to make informed judgments on the efficiency of banks. despite challenges, many researchers suggest that basel ii leads to rising rewards and discipline in banking industry. the indicators are that pay back for getting basel ii right and for looking beyond mere compliance to the real business benefits will be greater than originally anticipated. encouraging banks to understand and believe that enhanced economic capital framework would be the key to high performance is undoubtedly a regulatory challenge. 17. i believe the deliberations of this seminar will improve our knowledge on ways and means of dealing with regulatory challenges posed by basel ii and operational risk mitigation measures. i wish the seminar a success and thank you all for your attention.