inappropriate or too large, they can invest in the research and systems to prove the point and pursue the advanced irb approach. banks using the advanced approach would have more freedom, but their methodologies would first be closely reviewed and approved by the supervisor. this multilayered structure offers a flexible approach that could apply to a wider group of banks, not just to large, internationally active banks. the key question for u. s. community banks and their regulators is whether any of the options in the new basel proposal - - especially the standardized approach - - is a good match for community banks. another question is whether competitive pressures would provide incentives - - perhaps overwhelming incentives - - for community banks to pursue an irb approach. would such an allocation of resources by community banks and supervisors be desirable and efficient? finally, if not one of the basel alternatives, what capital standard would be most appropriate for community banks in the united states? comprehensive treatment of risk. although originally portrayed as dealing only with credit risk, the standard covers, in effect, virtually all banking risks through the experience - based, but unscientific, capital charge of 8 percent. that is, although the current standard was structured on the basis of credit risk alone, its level was set higher than warranted for just credit risk, in effect incorporating a " buffer " that could be used to cover " other risks. " as we get more precise in measuring credit risk, we lose some of the buffers previously built into the standard to cover operational and other risks. explicitly or implicitly, we now need to make judgments regarding the respective correlations of different risks. are they additive or independent, and to what degree are they one or the other? can the same capital cover all of them, or do banks need capital for each one? but again the question is whether the current approach, with its less precise measurement of credit risk and its buffers for other risks, is working well enough for community banks and should be left as it is. the bifurcation alternative : the interagency advanced notice of proposed rulemaking as i have mentioned, community banks in the united states have, besides the new basel proposal, another capital proposal to consider. i am referring to the advance notice of proposed rulemaking issued last october by the u. s. banking and thrift agencies that explores alternatives for simplifying the capital standard for noncomplex, non - internationally active u. s. depository institutions. this is the so -

demonstrates that we have yet another “ digital divide ” concern to contend with : the lack in many countries of infrastructure in information technology will provide one more obstacle to their ability to improve their competitiveness with the advanced nations. finally, some long - term concerns. certainly, there are endless benefits latent in the new technologies, but they have been widely touted, and reciting them is beyond the scope of these remarks. but let me mention a few emerging concerns that may need to be dealt with as time goes on. earlier we mentioned that the nature of the y2k challenge, with its very specific dimensions and very explicit deadline, was made to order for the american workforce to deal with. we passed that first major test of this new era with flying colors, but history may show that, huge and critical as it was, it was relatively easily handled compared with an emerging new genre of social challenge. later technology - driven challenges may be just as profound but less obvious, less deadline driven, less “ salable ”, more amorphous, and more difficult to pin down. they may be less overtly technical and may play out more on national and international political and social policy stages rather than at the level of the firm. problems of that sort can be exceedingly difficult to come to grips with. if care is not taken, many could fester unaddressed, with results ranging from suboptimal solutions arrived at ad hoc to out - and - out disasters of any of a number of configurations. public infrastructures and cultural norms, here as well as around the world, must evolve to successfully accommodate a new marketplace involving many entirely new elements in law and social structure. driven by technology, one can identify the outlines of future problems such as various ecological issues that involve many nations and require difficult levels of cooperation to successfully address. personal and national security threats could be unleashed by high - school hackers, computer - competent criminals, or even massive computer assaults mounted by terrorists or rogue states. the prerogatives of sovereign nations will be challenged in such areas as cyber patent opportunities, taxation of cyber commerce, and intellectual property rights. personal privacy rights are already on the front burner and could prove to be quite intractable as high - tech capabilities advance. modern financial systems are becoming so technologically sophisticated that regulators around the world are struggling to ensure their safety and soundness. there are different ethical, legal and religious issues surrounding technologies, unlocking the secrets of the human genome.