with the principles. given the pros and cons of two approaches, sbp will try to strike a balance between these two philosophies. the industry is still evolving and, as such, needs some guidance in the form of detailed rules. at the same time, the need to adapt quickly to changing circumstances and to learn from experience means that we need to retain flexibility around the detail that supports our principles. basel ii implementation sbp has initiated the implementation of the new basel ii minimum capital adequacy requirements. the standardized approach to credit risk and the basic indicator approach to operational risk became effective at the beginning of 2008 after running the new regime in parallel with the old one last year ( 2007 ). banks have made major advances in implementation of the new framework, though many are facing challenges in areas like integrated risk management policy, collateral management and the limited availability of credit ratings for counterparts. almost one half of banks ’ on - balance sheet exposures require external credit ratings but only one sixth of those exposures have ratings. of those that have been rated, most are banks, while only a small portion of corporate exposures are rated. the policy issue for sbp is how fast to allow or require implementation of the more advanced approaches. given the dearth of external ratings, banks will reap the full benefit of the new basel ii regime only when they can apply the advance approaches based on internal credit ratings. for this they need further improvements in their risk management systems. to push the reforms, sbp has made it mandatory for banks to carry out internal risk ratings though banks will be provided lead time for implementation. the application of the basic basel ii approaches is not likely to result in any major change in banks ’ capital adequacy ratios ( cars ). the impact studies done so far indicate that lower capital requirements against credit risk are offset by the new capital charge against operational risk, when compared against the previous basel i regime. only by moving to the advanced approaches can banks expect to lower their cars. financial conglomerates commercial banks are de facto moving into conglomerate modes by venturing into other sectors. some banks have acquired or merged nbf institutions such as investment finance, brokerage, asset management and insurance companies into the banks, while others remain as subsidiaries. conglomerates have become the norm, as banks broaden their product offerings and seek cross - selling opportunities. presently, 5 banks ( and one dfi ) own shares in insurance companies, 12 banks have interests in asset

interest rates also continued to decline in the quarter. the weighted average yield on the 1 - month, 3 - month and 6 - month treasury bills declined by 78 basis points, 35 basis points and 51 basis points, respectively to 7. 48 per cent, 7. 40 per cent and 7. 48 per cent at the auctions in the december 2010. yields have continued to decline falling by an average of 2 basis points at the auctions in january, with all tenors significantly oversubscribed. the external community has also continued to demonstrate its confidence in jamaica ’ s creditworthiness. average yields on jamaican sovereign bonds have fallen from about 10. 50 per cent at the end of january last year – just before the implementation of the jamaica voluntary debt exchange ( jdx ) – to 7. 57 per cent at the end of january this year. bis central bankers ’ speeches this occurred in the context of a fall of about 2 percentage points in the average spread between jamaican sovereign bonds and us treasury bonds – an indication that investors perceive a meaningful reduction in the risks associated with investing in jamaican securities. when compared with other emerging markets, jamaica ’ s bonds have also performed well. the spread between jamaican sovereign bonds and the benchmark emerging market bond index ( known as the embi ) fell by more than 3 percentage points over the course of 2010. also reflective of the increasing confidence about the near - term prospects for the economy, the foreign exchange market was relatively stable for the december quarter. in this context, there was a marginal appreciation of 0. 45 per cent in the weighted average selling rate of the jamaica dollar for the review period. this was in comparison to average depreciation of 3. 0 per cent for the last five december quarters. for the calendar year 2010, the value of the jamaica dollar appreciated by 4. 4 per cent against the us dollar. this was in contrast to the depreciation of 10. 2 per cent in 2009. the appreciation in the value of the domestic currency in the quarter was associated with increased net private capital inflows which were more than sufficient to offset the impact of increased demand to satisfy payments for current account transactions. in the context of this excess supply of foreign currency in the market, the bank made net purchases of us $ 51. 9 million during the quarter. these purchases along with the purchase from government of the proceeds of a us $ 200. 0 million loan from the inter - american development bank, contributed to an increase of us $ 197