frequent, compilations of the results of stress testing. the broader use of shared definitions to guide the comprehensive reporting of risk across the firm enables the integrated risk management function to identify concentrations of risk. concentrations matter particularly when various business lines within the firm have different kinds of exposures to the same counterparty. comprehensive and consistent reporting helps, moreover, to ensure that the firm is aware of the wide range of risks to which it is exposed ; that it understands the relative importance of various risks and how they may interact ; and that the firm is less likely to ignore material sources of risk. the joint forum ’ s study suggests that no single model for organising an integrated risk management function has become dominant. in some financial organisations, the function may exercise a considerable degree of control over individual businesses. in others - and especially in insurance companies - local business units continue to operate autonomously to a great degree. yet nearly all firms that establish integrated risk management units are highly dependent on the quality of their information technology to collect, analyse, and report firm - wide data efficiently and effectively. some participants have found that the greatest challenge in developing a centralised risk management structure lies in constructing compatible and efficient management information systems across all of their businesses. as a result, they devote substantial resources in terms of personnel and expenditures to the maintenance and enhancement of their management information systems. b. risk aggregation into a single measure collecting risk data across many business lines has catalysed further efforts to aggregate those measures of risk by quantifying them in a rigorous fashion. this is the second major risk management trend identified in the joint forum report. the quantification of risk is certainly not a new concept in the insurance industry. actuaries have long sought to estimate the likelihood of various events taking place. in recent years, however, we have seen financial risk managers and researchers apply mathematics, statistics, and modelling to many risk exposures that were previously not thought to be readily quantifiable. in the banking industry, for example, statistical and computational analyses developed for evaluating exposures to market risk led, over the past decade or so, to the application of similar techniques to credit risk. indeed, the introduction of increasingly reliable estimates of the drivers of credit risk, such as the probability of default, led to many of the proposals that form the basis for the basel ii bank capital framework, as i will discuss in a few minutes. the joint forum found that the “ ultimate expression ” of risk aggregation is the summation of many

insight into those measures of risk exposures and what the bank may do to control them. because the three pillars are so dependent on the internal measures, neither supervisors nor bankers can ignore the mechanics that define how financial data are recorded and reported. those mechanics, as you know, are governed by national accounting standards, which is the last topic i would like to address. supervisors and global market participants face significant hurdles in exercising discipline on an entity whose operations span more than one jurisdiction. business practices differ between countries. legal systems may be unfamiliar. deciphering balance sheets prepared under national accounting systems can be an extremely taxing undertaking. considering those burdens alone, it is easy to agree that supervisory and market discipline would be more effective under more harmonious - if not completely harmonised - accounting rules. but the task is formidable. in our duty to safeguard and reinforce financial stability, central banks and financial supervisors have a legitimate interest in the quality of accounting standards and their effective implementation. we believe that in order to help fortify the financial system, accounting standards should support - or at least be consistent with - sound risk management and control practices in use in the industry. in addition, accounting standards should facilitate market discipline by providing a more transparent “ window ” into an organisation ’ s financial position and performance and likewise into its measures and management of risk exposures. finally, accounting standards should facilitate the effective supervision of financial institutions. in the specific case of the insurance industry, i think it ’ s fair to say that almost all of us believe that, for international standards to be complete, we need a single, high quality standard developed to address insurance liabilities. the challenge lies in specifying a model that fits together seamlessly with other international accounting guidelines and at the same time aligns well with sound insurance risk management and supervisory objectives. given some of the issues we ’ ve faced in other areas of accounting, that seems unlikely to be a quick or easy job. that same challenge to align accounting guidelines to sound risk management objectives as well as supervisory objectives exists across the financial services sectors. it explains why financial supervisors, and especially the basel committee, attach great importance to playing an active role in the international debates on accounting. in the basel committee ’ s case, we seek to represent the supervisory perspective on key accounting issues relevant to banking, and we support the work underway in the accounting profession towards convergence in accounting standards globally. with regard to basel ii, the committee worked closely with our colleagues in the international accounting standards