itself, its precursor organisation – the european monetary institute – and the national central banks. indeed, the thorough preparation has paid off : the euro got off to a smooth start. given the sheer scale and significance of the project, it is, of course, unsurprising that it did not proceed entirely without hitches ; on the whole, however, there were no major complications. external developments such as the initial depreciation of the euro against the dollar have attracted somewhat pessimistic headlines ; but there are, in fact, several reasons for some satisfaction. the eurosystem, and specifically the governing council as its main decision - making body, has taken up its responsibilities of formulating and implementing the single monetary policy. in so doing, the governing council – which comprises the 11 national central bank governors of the euro area countries and the six members of the executive board of the ecb – has not only shown its determination to think and act for the euro area as a whole but has also proven its capacity for decisive action – as exemplified by the decision to cut the ecb ’ s main refinancing rate to 2. 5 % in april. with the launch of the single currency, the eurosystem successfully began to operate a system of centralised setting and decentralised implementation of monetary policy, using a new set of rules and procedures. in line with its treaty mandate, the eurosystem has also assumed its wider tasks and responsibilities, relating, inter alia, to the collection of statistics, the preparations for the issuance of banknotes or the operation of payment systems. the impact of the euro on financial markets the introduction of the euro has brought about momentous change in the financial markets, not only within the euro area, but also on a global scale. • first, a functioning money market for the euro area as a whole is a precondition for the successful operation of the eurosystem ’ s single monetary policy. in order to allow this euro area money market to operate smoothly, the eurosystem has established the requisite cross - border transfer and payment systems. the progress achieved in overcoming the previous fragmentation is highlighted by the rapid increase in transaction volumes within money markets and the almost immediate normalisation of bid - ask spreads. even at this early stage there is every justification for observing that the euro money market has already achieved considerable depth and a high degree of liquidity. • second, the advent of the new currency has also brought about a transformation

banks compute rwas. besides, a new explicit capital charge for interest rate risk for banking book positions is also proposed to be introduced. further, specific to the advanced approaches for risk measurement, the basel committee is undertaking a strategic framework review with a view to enhancing simplicity, reducing complexity and at the same time ensuring that the framework remains risk sensitive. the committee would also examine the potential for interaction amongst various policy prescriptions amongst themselves as well as with the monetary policy objectives to assess whether there is any potential room for material inconsistency which may severely undermine the overall objectives. 10. the fourth element impacting capital requirements is provisioning. ifrs 9 requires provisioning based on expected loss provisions. the bcbs only recently put out a discussion paper on accounting issues in estimating expected loss. 11. no doubt the new framework will need additional capital. specific to the psbs, government has announced the infusion of rs 70000 crore over the next four years. but the need of the hour is as much for the psbs to improve their internal processes to enhance efficiency, optimise the capital allocation and deal with the asset quality issue. there are several measures internal to banks and they must look at them than just look at the external factors. a lot can be done to improve credit underwriting, manage the credit post disbursement and recoveries. there is thus scope for improvement of internal accruals as a source of capital, and improving efficiency, risk management system and asset quality management are one of the most important parts of that effort so that external capital is not required for cleaning up balancer sheets unlike what would be happening now. bis central bankers ’ speeches 12. when capital requirement increases, there is impact on growth. there are varying estimates of this impact. the macroeconomic assessment group ( mag ) established in february 2010 by financial stability board and basel committee on banking supervision to coordinate an assessment of the macroeconomic implications of the basel committee ’ s proposed reforms, estimates that bringing the global common equity capital ratio to a level that would meet the agreed minimum requirement and the capital conservation buffer would result in a maximum decline in gdp, relative to baseline forecasts, of 0. 22 %, which would occur after 35 quarters. in terms of growth rates, annual growth would be 0. 03 percentage points ( or 3 basis points ) below its baseline level during this time. this is then followed by a recovery in gdp towards the baseline. banks can also respond to the higher capital