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

, for example, happen if a global recession triggers both a decline in oil revenues and low or negative returns on the fund ’ s capital. if other government revenues fall, and the expenditure side of the government budget is shielded, the oil fund will have to foot the bill krone for krone. chart : probability of 50 percent decline in the size of the gpfg the risk of a sharp decline in the size of the fund is further illustrated in this chart, which shows the probability of a 50 percent decline in the fund over a ten - year horizon. 4 in the initial year, fiscal spending of oil revenues is around 3 percent of the fund ’ s value – that is to say close to today ’ s level. government expenditure is then assumed to grow in pace with the expected growth of the economy, which means the expenditure side is shielded even in a situation with declining revenues. when and if that occurs, the oil fund will carry the cost. with a 60 percent allocation to equities, the probability of a 50 percent decline in the fund over a ten - year period is just over 1 percent. a higher equity share increases this risk, but the risk is still moderate. however, with a higher level of oil revenue spending, the downside risk increases. the yellow bars illustrate a scenario where oil revenue spending in the initial year increases to 4 percent – a familiar figure. in that case, the risk of having to draw down the fund increases considerably. the probability of a 50 percent decline in the fund increases threefold. my main message concerning this issue : first, fiscal policy must be decoupled from financial assets subject to considerable volatility. second, it would be unwise to increase petroleum revenue spending from today ’ s level even if the fund continues to grow. the period of rising government spending of petroleum revenues should now be over. inflation targeting has funcioned well in 2001, the same year as the fiscal rule was established, norway introduced an inflation target as part of its monetary policy framework. a number of countries had, in the preceding years, abandoned exchange rate targeting in favour of inflation targeting. this policy change was a response to the challenges associated with the fixed exchange rate regimes in an increasingly open global economy. since the financial crisis, monetary policy has faced an uphill struggle in many countries. the economic consequences of the crisis have been substantial, and the contributions from fiscal policy have been meagre. weakened growth capacity has magnified the challenges. at