. the basel committee ’ s response to these vulnerabilities was the approval, in 2010, of the new framework known as basel iii. focusing initially on the numerator of the solvency ratio and its value, the framework substantially increased the minimum capital levels required and the quality of this capital. 3 / 7 but there is more to basel iii than this : there has been a move from a framework turning on a single metric, the risk - based capital ratio, to another comprising a set of requirements that should interact in a complementary fashion. as a result, a leverage ratio has been introduced which not only limits indebtedness, but also constitutes a non - risk - based capital requirement ; two liquidity ratios have been incorporated ( one short - term, and another that seeks to ensure a more stable funding structure ) ; limits on large exposures have been set in place ; and, finally, macroprudential capital surcharges have been included to prevent and mitigate both the risks derived from globally systemic institutions and those associated with excessive credit growth at the aggregate level. risk sensitivity, complexity and comparability given all these changes and regulatory innovations, was there anything left to do? the answer is yes, since following the onset of the global financial crisis in 2008, the soundness of the basel framework was called into question, as was – more specifically – its risk measurement methodology. almost 30 years ago, in 1988, the basel regulations introduced the concept of risk sensitivity, assigning greater capital consumption to those exposures deemed to be of most risk. under basel i, this risk measurement was very simple, such that very few asset categories ( those considered to be of least risk ) had weightings lower than 100 %. in 2004, the basel ii accord established a new capital framework aimed at improving risk measurement, enabling banks to use their own models while providing a more detailed and risk - sensitive method than that of basel i. the in - house measurement models, which were assumed to be more advanced, were under supervisory authorisation, available to the banks with the greatest internal risk management capacity. these models were deemed to reflect best market practices and the shared objective was to promote their use. the search for risk sensitivity prevailed over other considerations of simplicity and comparability. that said, following the international financial crisis that broke in 2008 and the lessons drawn from it, shortcomings have been identified in the basel ii framework relating to the ability of the models to correctly measure risks

and, at the same time, to reduce its excessively automatic reliance on external credit ratings. this is no easy task either, and the final outcome may possibly be less ambitious than was initially intended. it is important, however, that the approach be robust and correctly calibrated. the impact assessments being performed by the basel committee will provide more information in this respect. in accordance with the guidelines we all subscribe to, as i mentioned earlier, this package of reforms should not produce a significant widespread increase in capital requirements. nevertheless, with the aim of reducing unwanted variation in risk - weighted assets, it is likely that capital requirements will indeed increase for banks that are using internal models in a more aggressive or inappropriate manner. in other words, given the aim of the reform, any resultant increase in capital requirements would be confined to the review of internal credit risk models, or to the possible limits on savings arising from their use. in general, the review of the standardised approaches should not result in increases in capital, as applied either to credit or operational risk. conclusion to conclude, following our meeting in basel, the challenge ahead for the central banks and supervisors is to reach an agreement on a new capital framework that maintains a balance between risk sensitivity, simplicity and comparability. reaching this agreement before the end of the year will be no mean task, and will require each of us to cede some ground. but a non - agreement scenario is not an option. basel is a most valuable edifice that we must preserve so as to maintain a global banking system. a delay in the agreement is not desirable either. it is not a matter of merely patching up basel iii. i believe banks and supervisors would benefit from finalising the new framework, and allowing ourselves a regulatory breather. thank you for your attention. 7 / 7