considered a complete forecast of basel ii's ultimate effects. it was a point - in - time look at how the u. s. implementation was progressing. institutions participating in qis4 put a lot of time and effort into assisting with the qis4 analysis. for that reason, we owe it to the institutions to provide feedback prior to engaging in a detailed public discussion of the findings. those feedback sessions, a full interagency effort involving an interagency agreed - upon presentation of the results, are now underway and we expect them to be largely completed by the end of this month. the agencies plan to release a public document describing our findings shortly after these sessions are completed, we hope by the end of the year. 3 / 6 proposed next steps in the basel ii process i would now like to describe some possible next steps in the basel ii process. to be clear, these thoughts represent our best estimates at this time and could change, given the extensive opportunity for public comment and additional interagency discussions to come. but i thought it would at least be helpful to offer the federal reserve's perspective. first, we support the idea of finishing an npr on basel ii and related supervisory guidance as soon as possible, which right now looks to be in the first quarter of 2006. we believe that the best way to further augment our understanding of the impact of basel ii is to issue the npr and hear reaction from the congress, the industry, and the public. in addition, we are interested in issuing the npr and related supervisory guidance as soon as possible so that bankers can have a better idea of supervisory expectations relating to basel ii. the npr will help bankers identify the areas where they need to strengthen their risk - measurement processes as they continue to prepare for adoption of basel ii. after the end of the npr comment period, the agencies plan to review the comments and decide more specifically on how to move forward. the agencies would then develop a strategy for issuing a final rule on basel ii, of course taking into account comments received. once the final rule is issued, those institutions moving to basel ii would complete preparations to move to a parallel run, a period in which minimum regulatory capital measures under both basel ii and basel i will be calculated. under the current timeline, the parallel run would start in january 2008. the parallel run period, which is intended to last for four continuous quarters, should provide us with additional key information about the expected results for basel ii on a bank - by

. as a result, we have seen the rise of very large entities with large geographic reach operating in many lines of business and engaging in complex and sophisticated transactions. the largest institutions have moved away from the traditional banking strategy of holding assets on the balance sheet to strategies that emphasize redistribution of assets and actively managing risks. these dramatic changes to the risk profiles of many banking organizations have only accelerated with the continued evolution of many, often complex, financial tools, such as securtitizations and credit derivatives. additionally, risk - management techniques employed by many banking organizations continue to change, improve, and adapt to the ever - changing financial landscape. for instance, operational risk was not part of our risk - management thinking ten years ago, but tools to identify, measure, and manage it are now becoming prevalent. also, the lines between the banking book and the trading book have blurred significantly and organizations continue to move resources and products to optimize earnings and manage risks. and finally, global competition has intensified significantly, as the ability of customers to choose from a variety of local and international banking firms, as well as nonbank competitors, has increased. while the current basel i - based rules have served us well for nearly two decades, they are simply not appropriate for identifying and measuring the risks of our largest, most complex banking organizations. basel i, even when periodically amended, must be straightforward enough for even the smallest 1 / 6 banking organizations to implement with relative ease. thus, the categories of risk used to determine capital are very broad and are intended to capture the " average " risk levels across the banking system for that generic exposure. large financial institutions, however, tend to manage risk in more proactive ways, and are able to take advantage of new innovations in financial instruments to hedge, sell, or take on risk exposures to support their business strategies and profitability targets. as a result, they are able to remove balance sheet exposures for risks where they feel regulatory capital is set too high, and thereby reduce minimum regulatory capital. smaller organizations generally do not have the risk - management systems or scale of transactions to make these practices economically viable. while the balance sheet focus of basel i is appropriate for most banking organizations, the largest organizations have significant exposures off the books, and these risk exposures need to be considered explicitly in determining minimum regulatory capital for these sophisticated organizations. large organizations are increasingly gravitating toward fee - based revenue streams. this is due to securitizations of loan