activity slows. the official sector, including supervisory authorities, continues to work nationally and collectively to promote an orderly deleveraging process. we also need to develop a coordinated strategy to put the banking system on a sound footing over the longer term. such efforts will further reinforce near term confidence - building measures and provide a long term target around which national and global policy making efforts can converge. they also will provide the basis for an exit strategy from the increased official sector engagement in the banking sector. i would like to focus the remainder of my remarks on how we can go about achieving this longer term strategy. the basel committee ’ s response the primary objective of the committee ’ s strategy is to strengthen capital and liquidity buffers and help contain leverage in the system arising from both on - and off - balance sheet activities. it also will promote stronger risk management and governance practices and limit risk concentrations within and across banking institutions, and strengthen market transparency. ultimately, our goal is to help ensure that the banking sector serves its traditional role as a shock absorber to the financial system, rather than an amplifier of risk between the financial sector and the real economy. the committee will promote multiple and reinforcing lines of defence in supervisory and risk management frameworks to enhance bank resilience. let me discuss in more depth the key building blocks of our strategy. strengthening capital buffers i will start with the committee ’ s initiatives to strengthen the regulatory capital framework. i would note up front that regulators need to be extremely cautious about adding to the already severe procyclical behaviour in the market place. as such, we do not propose to raise global minimum capital ratios during a crisis. however, banks need to ensure they have adequate buffers above the current regulatory minimum that reflect the nature of their portfolios and their exposure to a plausibly severe economic downturn scenario. with that background, i will now provide you with more clarity about the committee ’ s approach to strengthen the capital regime, building on the three pillars of the basel ii framework. any enhancements will be introduced in a manner that promotes the near term resilience of the banking sector and its ability to provide credit to the economy. moreover, we cannot set long term capital requirements on the basis of market reactions in the midst of the most severe deleveraging process we have seen in our lifetime. this effort needs to be carried out as part of a considered process that balances the objective of maintaining a vibrant, competitive banking sector in good times

against the need to enhance the sector ’ s resilience in future periods of financial and economic stress. risk capture let me begin with the issue of the risk capture of the basel ii framework. the move to basel ii addresses many of the risks that were not captured under the basel i framework and helps reduce a number of the perverse incentives that contributed to the crisis. the three pillars of basel ii will help ensure that capital regulation is better positioned to handle periods of rapid innovation and the new products that such periods produce. moreover, basel ii will ensure that all contractual exposures to off - balance - sheet vehicles are subject to regulatory capital requirements. non - contractual exposures and implicit support will be addressed through enhancements to the pillar 2 framework. last april, the committee announced a number of steps to enhance the risk capture of the basel ii capital framework. these measures are an important part of the financial stability forum ’ s response to the crisis that was set out in its april 2008 report on enhancing market and institutional resilience. for example, the basel committee ’ s efforts strengthen the capital treatment for off - balance sheet exposures and securitisations. the committee expects to issue proposals for the capital treatment of these exposures in early 2009. the proposals are subject to public consultation and we will carefully consider all comments received. we also have issued a proposal to strengthen the capital framework for the trading book. in particular, we will address the risks of less liquid credit products, which have produced the majority of losses in the banking sector to date. while the proposals reflect the inherent risks already embedded in banks ’ trading books, they will be phased in over an appropriate period to give the banking sector time to adjust to the new requirements. we are strengthening the disclosure requirements for banks ’ risk exposures and the adequacy of capital to support these exposures. we are focusing in particular on trading, securitisation and off - balance sheet activities. finally, we will review the role of external ratings in the basel ii framework. i should point out that the use of external ratings is limited to the simple standardised approach for credit risk and the securitisation framework. our review will include how any unintended consequences could be mitigated. quality of capital let me now turn to the issue of the quality of capital. the committee has been reviewing the key elements of tier 1 capital and the importance of ensuring strong core capital. a strong, high quality capital base is critical for