nout wellink : global banking supervision in a changing financial environment formal opening address by dr nout wellink, president of the netherlands bank and chairman of the basel committee on banking supervision, at the 14th international conference of banking supervisors, merida, mexico, 4 october 2006. * * * introduction good morning. it is an honour and a privilege for me to officially open the proceedings of the 14th international conference of banking supervisors. this is my first formal address as chairman of the basel committee on banking supervision, and i can ’ t imagine a more appropriate venue for my first speech than here with my colleagues from the international banking supervisory community. in addition, this year ’ s icbs is the first to be held in latin america, and i ’ m very pleased that we have at long last gathered in this rapidly growing and dynamic region. since we gather at the icbs to bring together our varied views and experiences, it is appropriate that we are here in the beautiful city of merida, which reflects the diverse influences of europe, the caribbean and the local mayan culture. i would especially like to extend my sincerest thanks to jonathan davis and his staff at the mexican national banking and securities commission for their warm and generous hospitality. not only have they put together what i expect will be a very thought - provoking programme of speakers and working groups, but they have also arranged a fascinating programme of events to better acquaint us with the colourful history and culture of mexico and its yucatan region. before i begin, let me acknowledge one of our colleagues who was supposed to be joining us here. as you are no doubt aware, andrei kozlov, first deputy chairman of the central bank of russia, was recently and tragically slain. we will remember mr kozlov for his tireless efforts to promote the safety, soundness and integrity of the banking system. his death is a great loss to the international supervisory community. in my remarks this morning, i would like to touch on several key themes. first, i will briefly review the work that has taken place since we last gathered two years ago in madrid. i would then like to share some thoughts on developments in financial markets and the banking sector, and on how these developments influence the types of issues that both supervisors and the industry face. finally, i will end with thoughts on the future agenda of the basel committee. in particular, i will emphasise our commitment to basel ii implementation, the need to monitor and assess the broad impact

of cross - border information sharing and coordination, and clearly define those areas where supervisory responsibilities overlap and those where they diverge. our recent updates to the basel core principles show that we have been up to these challenges. the process of updating the principles was a truly global supervisory effort and demonstrated our capacity to cooperate and seek a common understanding on many important issues. and the result – a global standard whose local application can be scaled in proportion to local risks and financial market realities – demonstrates our ability to work effectively within the constraints imposed by using national structures to supervise global institutions. future work of the basel committee given the developments that i ’ ve just cited, where do we go from here? how do we strike the appropriate balance between change and stability? my third topic this morning is to share some ideas on where i see the importance of work in the supervisory community over the next several years. i will focus my remarks on three key areas : our commitment to basel ii implementation ; the importance of assessing and monitoring the impact of basel ii ; and the need for proportionality in supervisory efforts relative to underlying risks in order to minimise the regulatory burden on the industry whenever possible. basel ii implementation let me begin with basel ii implementation, which remains the key item on the committee ’ s agenda. as i mentioned at the outset, basel ii represents a fundamental paradigm shift in the supervisory approach to capital regulation. this new approach is entirely necessary if capital standards are to keep pace with rapid innovation in financial products as well as in risk measurement and management techniques, and the ever increasing complexity of firms ’ risk profiles. as such, the new framework is absolutely critical to the health and stability of the banking system. given the importance of basel ii, i am pleased to report that implementation is fully under way. for example, implementing legislation or regulation is either in place or in process in markets such as the european union and japan. likewise, supervisory agencies in the united states recently issued their notice of proposed rulemaking. meanwhile, banks are continuing their discussions with supervisors on their specific basel ii plans, in many cases with a goal of implementation next year. let me not, though, gloss over the difficulties involved in successful implementation. for example, it is clear that home - host issues remain among the most challenging for both supervisors and the industry. in addressing these issues, we should strive to achieve as much cross - border consistency as possible on key elements of the framework. at the same time, we should also recognise that both home and