, german banks ’ exposures to small and medium companies would require less than the 8 % capital currently needed under the 1988 accord. but the issue is not simply a question of impact. the principal motivation behind the basel committee ’ s efforts has been for bank capital requirements to take appropriate account of risk. in this regard, the committee has over the last six months been engaged in a significant research program to assess whether the size of a borrowing firm should be explicitly considered when banks calculate their capital requirements. at this point, the basel committee is discussing whether and how to factor a firm ’ s size into the new framework. a lower capital charge for a portfolio consisting mainly of loans to many small companies makes economic sense because that portfolio is likely to be better diversified than one concentrated in loans to a handful of large companies. assuming the discussions within the basel committee continue to proceed in this direction, it means that loans to small and medium - sized borrowers would have lower capital requirements than loans to larger companies that are otherwise rated the same. one point should be made about the treatment of loans to small and medium - sized enterprises. the basel committee wishes to ensure that our new framework reflects the sound risk management practices of banks. for example, many banks manage and evaluate their loans to smaller businesses in a way that is similar to the way they handle consumer loans. the design of the internal ratings - based framework will, therefore, allow a number of such loans to be treated like retail credits, as opposed to corporate loans. this principle also will apply to another important issue within our capital framework, namely the role of a loan ’ s remaining maturity. the committee is sensitive to the concerns raised about the need to respect the long - term lending culture prevalent in a number of countries. in this context, we will examine carefully how, or even whether, maturity factors should apply to lending to smaller businesses. treatment of equity exposures the changes i have referred to concern bank loans, which, of course, are a key source of funding for many companies. nearly all businesses – especially those growing into medium or large - sized firms – also rely on investments from outside parties to build up their capital base. here, i ’ m referring to outsiders who provide “ venture capital ” for growing firms, as well as to investors who buy the publicly traded stock of more established firms. what do i mean by venture capital? many small firms seek an “ angel ” investor, one who sees the potential in the firm ’ s strategy and is

##igler ( 1961 ), " the economics of information ", journal of political economy, vol. 69 ( june ), pp. 213 - 25. thomas a. durkin ( 2006 ), " credit card disclosures, solicitations, and privacy notices : survey results of consumer knowledge and behavior ", federal reserve bulletin, vol. 92, pp. a109 - a121 ; thomas a. durkin and gregory elliehausen ( forthcoming ), financial economics of information disclosure : applications to truthin - lending ( new york : oxford university press ). consumers. 9 the prohibition of the provision of misleading or erroneous information can also help to improve competitive outcomes. to evaluate the effectiveness of disclosures, we must know what consumers understand, what information they use, and how they use the information in making decisions. in designing rules, we need to take consumers'actual behavior and understanding into consideration. as a result, the federal reserve has been using consumer testing to address the considerable challenge of making disclosures effective. as mentioned, consumers increasingly face more - diverse and more - complex financial products, including nontraditional mortgages and credit cards with multiple and complex features. given this complexity, we are mindful of the challenges of information overload and seek to design disclosures that are not only accurate, but also clear and concise, so that they are meaningful and useful to consumers. numerous pages of fine print may provide the comprehensive descriptions that lawyers may prefer, but they can also be confusing, or provide limited value, to consumers. we increasingly rely on feedback from surveys and testing from actual consumers to determine the information they need to make informed choices. in this regard, we recently completed several rounds of consumer testing for credit card disclosures. that testing has been essential to our effort to redesign and improve them. we have also begun using consumer testing of mortgage disclosures to help develop more - effective disclosures around product features and other terms that consumers need to know. limitations of disclosure protections when consumers are fully aware of and understand product terms and features, they are better positioned to make the right choices and achieve the outcomes most appropriate to their given circumstances, as well as give the signals and rewards to businesses that produce the products and services consumers most value. however, some product features and contract terms may be so complex that they are not readily understood. in some instances, even small misunderstandings, misjudgments, or the challenge of focusing on the most essential features