occur. one other development since our last meeting with the committee was the final report of the financial system inquiry. this was quite a wide - ranging report and there is now a further period of consultation. i simply note that the inquiry did not find major problems in the financial system, but did make recommendations about capital, to enhance the resilience of the banking system, and about loss - absorbency more broadly in the context of resolution. these will be mostly in the province of apra to consider. the inquiry also made some observations about payments matters, generally supporting the steps the payments system board has taken since its inception in 1998, and pointing to some areas where further steps may be appropriate. the payments system board will be considering these matters at its meeting next week. we now await your questions. bis central bankers ’ speeches

planks of the proposed new accord. there is a risk that in some circumstances there are drawbacks associated with this, since disclosure could make a troubled bank ’ s position worse at a difficult moment. but overall, we think the likely behavioural changes induced by greater transparency offer more benefits than risks. by this i mean that the prospect of having to disclose more about positions to the market will reduce banks ’ willingness to take on highly risky positions in the first place. benefits and drawbacks of complexity a number of other commentators have questioned the effectiveness of introducing greater complexity into the basel rules, on the grounds that the framework will always be inadequate to cope with innovation and arbitrage. it is certainly clear that a minimum capital framework, however sophisticated, cannot on its own capture the full range of risks in a banking organisation. this has been recognised by the basel committee ; it is the reason why the consultative paper introduces the supervisory review process for individual banks under pillar 2 of the framework, as a complement to the minimum capital standard laid down in pillar 1. it is equally clear that supervisors, even armed with powers to review the individual capital adequacy of banks under pillar 2, may under some circumstances be less effective than the market at disciplining risk taking, which again is why the basel committee is emphasising the importance of enhanced public disclosure under pillar 3 of the accord. but to my mind there is very considerable scope for improving the risk - sensitivity of the minimum capital standard before the benefits of this begin to be outweighed by the costs of greater complexity. indeed, greater risk sensitivity ought in some respects to mean more simplicity in the capital framework, achieved by aligning capital with a common underlying concept of risk, such as internal or external ratings. internal ratings indeed offer a very significant opportunity to bring regulatory measures of capital more into line with the economic measures established by industry best practice : in the absence of this, arbitrage of the system through securitisation and other means will remain a problem. the current review also offers the opportunity to iron out some of the existing, fairly arbitrary, quirks of the current accord. for example, by identifying the common characteristics and residual risks underlying various types of credit risk mitigation techniques - collateral, guarantees, netting, and credit derivatives - it is hoped that a more uniform and consistent treatment can be applied to these instruments in place of the various, somewhat ad hoc, treatments that have grown up to date. there is perhaps one cave