of the central government also arises. in the german view, the status quo should be retained, that is to say, there should be no change to the present right to choose a supervisory authority for the risk weighting of land and local governments. the zero - weighting of loans to land and local governments would then still be possible. to my mind, it would not be fitting for every minor municipality to have a rating of its own, if only to have an appropriate risk appraisal in the future. v quite apart from the competition argument, in the light of the above - described “ rating gap ” between the united states and europe, there are a number of substantive criticisms that can be levelled at the prudential use of external ratings. for instance, external ratings may prompt a bank to exercise less care in granting credit. that would be contrary to the avowed aim of supervisors of setting the supervisory framework in such a way that the banks themselves have every interest in improving their own risk - management techniques. in addition, it might be objected that rating agencies are being given too much power in the context of regulating banks, because they determine by their rating how high the capital requirements for banks should be. moreover, it is feared that strong competition among the agencies might lead to a watering - down of the results, or that enterprises requiring a rating might engage in a kind of “ rating shopping ”. finally, the asian crisis is cited, in which, it is claimed, external ratings contributed to the herd instinct exhibited by the banks. i share the view which is occasionally expressed that the banks ’ function of assessing risk by means of an examination of creditworthiness is in essence not “ outsourceable ”, but that a risk examination of their own, and thus made on their own responsibility, prior to the granting of credit, is fundamentally indispensable. as a result of the amendments being prepared in basel and brussels, i expect that internal rating systems for the computation of capital will in future play the crucial role in the banking systems of europe. besides that, however, external ratings in the field of capital - market transactions, e. g. in the case of asset - backed securities constructs or corporate financing through debt securities and the like, will likewise increase in significance. vi the authorisation of internal bank ratings – like that of external ratings – will be linked to qualitative and quantitative minimum standards. a working party of the basle committee is currently engaged in el

that external ratings awarded by rating agencies pursue different objectives – namely, a more long - term orientation towards the entire credit cycle – from internal bank ratings. the topic of “ completeness ” is naturally also of great significance in the case of internal bank systems. i assume that “ partial use ” will also be possible here. to that extent, the rating would then be incomplete. ladies and gentlemen, the debate on a rapprochement of the prudential to the economic capital of banks by the deployment of management instruments of their own naturally involves uncertainties and risks. the “ self - assessment ” by the banks planned for a substantial part of the risks in the computation of the capital to be maintained in respect of the risks incurred therefore calls for a supervisory audit of the internal bank methods used. it is at this point that the two other pillars of the new accord come into play. in particular, banking supervisors will be obliged – as stipulated by the second pillar of the discussion paper ( the supervisory review process ) – to gain a clear idea at first hand of the instruments used in banks ’ risk controlling and risk management. that applies all the more since the market can hardly function as an external monitoring body for internal bank ratings. vii ladies and gentlemen, it is not only at the international level that a “ level playing field ” must be ensured. that is scarcely less important at the national level as well. as you know, the basle accord is primarily applicable to internationally operating banks. on the basis of the basel proposals, the same subjects are being addressed in brussels, too, so that ultimately the entire banking sector will be affected by the regulations. after the implementation of a corresponding eu directive, those provisions will be binding on all credit institutions within the eu. we advocate, firstly, that the final regulations should coincide in brussels and in basel, and should come into effect at the same time. by that means, a duplication of efforts should be avoided by those credit institutions which will have to apply both sets of regulations. secondly, it is our aim that, in principle, all institutions – regardless of their size – will be able to apply the new regulations. hence, we welcome the efforts being made by the banking associations to assist their member institutions in implementing internal rating systems. it would be conceivable, for instance, for certain demands of the rating process ( e. g. the collection and processing of data ) to be satisfied centrally by the associations. that naturally gives rise to questions