market stress. not to over - use the example of the market risk standard, but it illustrates another useful point, as well. reliance on a bank ’ s own risk measurement and modeling process in determining regulatory capital standards also acknowledges that no single or specific technique is best for everyone. each institution should tailor its risk measurement and management process to its own needs. while adhering to basic principles, each institution must determine for itself the proper incentives and techniques for managing its affairs. no two banks or banking markets are identical in their operations, structure, or historical development. permitting a range of compatible responses to similar situations encourages experimentation, innovation, and growth. accommodating a certain level of flexibility is necessary for banks, and it is necessary for regulators, too. indeed, flexibility may be even more important for non - g - 10 countries than it is for those of us with large, developed financial systems because of the greater range of capital market and economic infrastructures among developing countries. materially different situations typically require different solutions. accommodating differences, though, does not reduce the need for minimum regulatory or supervisory standards based upon well - known principles of sound banking. it is up to supervisors and, if necessary, legislators to craft regulations and laws consistent with internationally recognized standards, but accommodative to local customs and economic needs. in developing sufficiently flexible, market - compatible regulations, i believe we should rely as much as prudently possible on market discipline and on banks ’ internal incentives to perform well. this approach requires that the public have information about the risk exposures of banks and about their procedures for managing those risks. as regulators, we can encourage this process by requiring or prodding banks to disclose information to the markets that is both relevant and comparable among institutions. whether such disclosures are imposed by official regulations or evolve through more subtle efforts, supervisors can help guide the process by considering carefully the kinds of information the private sector needs and that banks use - - or should use - - to manage risk. even in the united states, where surveys show disclosure is relatively good, supervisors make available to the public data collected on call reports. in countries where disclosure practices are minimal at best, bank regulators may be able to perform a particularly important role by publicly disclosing some, if not much, of the information banks report to them. by fueling market information in this way, regulators may stimulate greater investor interest in banks and the growth of local capital markets. improved disclosure practices by

their markets are sound and subject to adequate supervision, whether by home or host authorities. banks operating imprudently and without proper supervision are the ones most likely to mismeasure their risks, misprice their products, and disrupt the markets. detecting and deterring such institutions does not require us to have uniform regulatory or supervisory systems, but it does require a certain level of cooperation and coordination and a material level of consistency in our regulatory regimes. our experience in the united states suggests that achieving an appropriate convergence takes time, not only to develop but to maintain. progress we have seen through the european union and the bis goes far in coordinating, or harmonizing, banking laws, regulations, and operating standards, but that ’ s just a start. as managers of large financial institutions develop more sophisticated and more comprehensive risk management systems, they are paying less attention every day to the peculiar legal structure of their organizations. as regulators, we need to understand how banking organizations manage and control risks and the full implications of their practices for the financial safety of depository institutions. by doing so, we can do much to protect our own interests while still recognizing and accommodating the business needs of banks. in developing our laws and regulations we need to work together, for sure. but perhaps more importantly, we need to understand the market forces and incentives that banks face. if we keep those factors in mind in developing our individual rules, we may go far in developing regulatory systems that are both compatible among countries and less intrusive to the institutions we oversee.