is accomplished by encouraging sound risk management and stronger balance sheets, and creating efficient systems of market, legal, and regulatory discipline. • but the learning process continues. for example, in this country, recent experiences have brought to light the need to do more to strengthen corporate accounting and disclosure standards, particularly with regard to guarantees and complex financial arrangements, such as those funded offshore or through special - purpose entities. • our ongoing efforts to revise the basel capital accord also reflect a learning process. we embarked on this voyage in the late 1990s because we realized that the original 1988 basel accord had been overtaken by advances in the financial sector – and in the broader economy. while the 1988 accord represented an important advance, new technology, the globalization of financial markets, and innovative financial products and services have changed the way that banks monitor and manage credit, market, and operational risks in a manner that the 1988 accord could not anticipate and does not address. • to ensure that the new accord remains flexible, forward - looking, and appropriate for the risks and capital needs of internationally active banks of the twenty - first century, the basel committee established several goals for its work, goals that the industry has embraced. g first, we intended to develop a framework that encompasses the " three pillars " necessary to support an effective system of regulatory capital : the appropriate measurement and minimum requirements, supervisory review, and market discipline. g second, we wanted to align the minimum requirements more closely with the actual underlying economic risks to which banks are exposed, which should help allocate capital resources effectively. g a third goal was to encourage banks to refine their measurement and management of risk over time. by creating incentives in the new accord for banks to re - evaluate and enhance their tools constantly, we expect that banks themselves will adopt a forward - looking perspective on risk. g i ’ m pleased to say that, through the committee ’ s efforts and the cooperation and support of other supervisors and the industry, it appears that the proposed framework will attain each goal. we can now count them among the milestones we've achieved. • however, though we have covered quite a bit of territory over the past three years, the last miles of any marathon are the toughest to finish. i ’ d like to turn now to the status of the new accord and of the issues we are still resolving. • since the second consultative document ’ s release 21 months ago, the members of the basel committee have worked collaboratively and publicly with supervisors

, a successful market - based, case - by - case approach also needs to be principled. i would suggest that the essence of an effective case - by - case approach is the development of viable plans that link broad, generally acceptable principles to the particulars of a given situation. g to achieve this, a clearer and more transparent articulation of the public sector ’ s objectives is necessary. greater emphasis and clarity are needed as to the purposes and limits of public intervention, and the extent to which those interests warrant different degrees, modes, and timing of public and private sector involvement, depending on the particular country and circumstances. in this way all parties will be better placed to understand current developments and how the international community might react to future strains. • there are, of course, other points of view. in particular, it has been suggested that an early recourse to broad suspensions of debt service, perhaps amplified or reinforced by capital controls, would increase the manageability of crises and enhance predictability. • my reading of the record convinces me that trying to preemptively override market processes would do the opposite. let me share a few thoughts with you on this point. g the desire for certainty and control which seems to underlie such proposals is understandable, as it appears to offer the promise of using less public money, and seemingly entails less risk that creditors will be bailed out for poor credit decisions. but the control and manageability that might result may be more seeming than real. g for one, a perceived disposition to preemptively lock the door seems likely to send investors heading for the exits all that much sooner. as a result, many avoidable crises soon may become inevitable. and the problem of contagion, whereby difficulties in one case spread to many, would seem likely to worsen. g moreover, a perceived weakening of the international community ’ s commitment to voluntary, market - oriented approaches and its support for honoring contractual commitments would likely create deep distrust, making it harder to encourage cooperation between debtors and creditors in ultimately resolving the crisis. g an overly quick recourse to payment suspensions also risks discouraging precisely the types of flows that we should wish to encourage, that is, longer maturities with better risk - sharing characteristics, such as long - term bonds and equities. in a crisis, the hottest money leaves first - - by definition. it seems counterproductive to seek to penalize those who stay.