wide support to deal with procyclicality problems includes the followings. first, there is a proposal on the build - up of capital buffer in the good times to be run down in the bad times and to prevent excessive credit growth. second, as being discussed with accounting standard setters, provisioning should be linked with expected loss rather than incurred loss, which is the prevailing practice. finally, the primarily simple and transparent “ leverage ratio ” should be applied as a complement to risk - based capital requirement under basel ii. implementation of many such policies is still subjected to significant work on calibration as well as qualitative issues such as consistency with risk - sensitive capital framework, and international level - playing field. such problems magnify in the case of emerging markets, which face constraint on data and institutional capacity. moreover, much of the work done on calibration would tend to serve the need of irb rather than sa banks that are the core in emerging market. thus, the reform agenda will need to pay proper attention to capacity building of banks and regulators. nevertheless, there are warranted rationales for its use in financial stability tool kit in an appropriate manner, given national context. in terms of measures to address systemic risk, the proposed ideas include systemic capital charge, capital for otc derivatives, and cross - border bank resolution framework. again, the same emerging market issue and dimension should be properly recognized. turning to the key microprudential policy framework currently being discussed at the international forums to ensure individual financial institution ’ s stability, the bcbs has proposed a package to address previous shortcomings in risk - based supervision as follows. for pillar i, regulatory capital for securitisation exposure is enhanced. in addition, the quality and transparency of capital is strengthened especially tier i capital, which would consist mainly of common equity and retained earnings. for pillar ii, supplemental guidelines are issued by requiring banks to manage firm - wide, concentration and reputational risks more effectively. valuation and stress - testing practices are also improved. moreover, compensation and bonus scheme should be aligned with longterm risk taking behaviour and performance. turning to pillar iii, focus is given to disclosure requirements to reduce uncertainties associating with securitization exposures. additional requirements include, for example, sponsorship of off - balance sheet vehicles, and resecuritisation exposures. on top of these, a new regulation on liquidity risk management, namely the so - called liquid

, through hearings. macroprudential policy framework is a more challenging area, particularly in terms of data limitations and policy calibration. despite this challenge, the bot remains committed to maintain overall stability of the financial system. as such, we stand ready to guard against any build up of bubble and imbalance within the system. let me now share with you what i believe are our priorities, going forward. amongst these, basel ii implementation, especially adequacy of capital, icaap and stress testing practices is on top of our list. the principles stipulated in pillar ii, which came into effect in september this year, are in line with the existing risk - based supervision used by the bot, but places greater focus on the qualitative aspect of risk management and assessment of capital adequacy. for example, the role of the board of directors and senior management in the assessment and formulation of strategy on capital management for the current and future periods, has been stressed. in this regard, we hope that banks would ensure they have a good risk management system, with an icaap that covers all significant risks, including those stipulated under pillar i as well as other risks. these other risks should at least include credit concentration risk, interest rate risk in banking book, liquidity risk, strategic risk and reputational risk. moreover, it is desirable that banks maintain capital above the minimum regulatory requirement to withstand future losses both in normal and stress situations. to achieve this, banks should conduct stress tests and formulate capital plan in accordance with the stress test results, in a systematic and continuous manner. we expect banks to be able to finalize and start using their icaap by the end of december 2010, with the first icaap report submitted to the bot within the first quarter of the following year. the bot would then begin reviewing banks ’ icaap during bank examination that year. in assuring adequacy of capital over the business cycle, we believe it is very important to focus on countering procyclicality by ensuring capital and provision buffer, as well as to introduce ias 39 which incorporates correction from problem or procyclicality as being considered by international standard setters and bcbs. importantly, we emphasise the importance of consolidated supervision to ensure adequacy not only in capital but also riskmanagement of the entire banking group, particularly liquidity risk. in this regard, with respect to foreign banks, an important issue to