referring to the difference between market and book value for bonds which are held to maturity. and we should look at how to address the issue that, in times of stress, banks may be hesitant to use instruments in the liquidity buffer that are not marked to market daily for accounting purposes. the turmoil last year also showed how important it is that banks are operationally prepared for liquidity stress. banks need credible and tested contingency funding plans and they must be operationally ready to access central bank liquidity facilities in times of stress. while this may be more of an issue in the us, we should also look at how this can be improved in the eu. then interest rate risk. when banks fail to cover this risk sufficiently, changes in market interest rates can lead to substantial losses and, in extreme cases, even to bank failure. the recent developments at regional banks in the us offer a vivid illustration of this. the events last year underline the importance of regulation for interest rate risk management and the need for prudent assumptions about customer behaviour. capital is also necessary to absorb the uncertainty of customer behaviour. in order to promote global harmonisation, we should explore the inclusion of interest rate risk in the pillar 1 requirements. and last but not least, we need to think about at1. rather than acting to stabilise a bank as a going concern in stress, international experience has shown that at1 absorbs losses only at a very late stage of a bank failure. we saw this in the case of credit suisse in 2023, with the swiss national bank noting that'the at1 features designed for early loss absorption in a going concern were not effective '. in this instance, at1 only absorbed losses when the point of non - viability was imminent and failed to stabilise the entity at an earlier stage of stress. this should encourage regulators to reflect on the role and functioning of at1 instruments in determining the capital position of banks. these are all important things that we have to look into. but first and foremost we have to implement basel iii. and while i know this is primarily a message to regulators and 3 / 4 bis - central bankers'speeches lawmakers, it is also a message to you. because what a strong signal it would be if you as a group would say : don't water down basel iii. don't give us weak rules, give us strong rules. strong rules that apply to all banks wherever they are and whatever their size

view, ought to be determined by the specific circumstances of the individual borrower. if that borrower is really the sovereign, let us be up front about it. if the borrower is really a bank, its capital classification should not be determined simply by its home country. the capital accord should not lend its support to the unfortunately traditional presumption of external creditors that countries need to stand behind all external borrowings by their banks. so, by all means, i am firmly in the camp for adjusting interbank capital charges. but, i doubt that an alignment of risk weights for interbank credit itself would have had much effect on the borrowing and lending behavior we saw in the runup to the asian financial crisis. this is not to say that interbank lending has not been a problem. but the problem may be us. that is, we have created a significant moral hazard by, in effect, making lending banks whole, and even increasing their returns, when the borrowing banks in emerging nations are unable to meet their obligations. when confronted with the reality, no authority has been willing to face the implications of bank defaults on the losses of the lending banks or the implications of the unavailability of new bank credit for the nation in default. but our perfectly rational short - run decisions create the incentive for lending banks to do the same thing again, and again, and again. returns are reasonably high, and risk to them is reasonably low. the issue is clearly the short - run - long - run tradeoff and i do not have much to add to the argument about interbank lending other than that some change in the architecture and process must be made or the cycle will continue ; and that change must involve some genuine risk - taking by the lending banks if we are to reduce, if not eliminate, the moral hazard we have created. conclusion a final word about short - run - long - run tradeoffs. some have argued that both risk - sensitive capital charges and market discipline will be pro - cyclical. the rationale, as i understand it, is that following a peak, as economic conditions deteriorate, evaluations of risk will change, and risk premiums will rise. as more potential borrowers are viewed as riskier, banks will be even less willing to lend so as to avoid facing higher capital charges or higher borrowing costs or less availability in the market. in an improving economy, the opposite occurs. as one of my colleagues states, the problem with market discipline