##tainable mortgage arrangements, leading to a quantification of the size of this segment of their mortgage portfolio ; – the development and piloting of specific loan modification techniques ; – modeling of the capital implications of applying the latter techniques to the former population ; – developing operational targets and key performance indicators ( kpis ) for the resolution of the unsustainable mortgage population ; and – execution of these targets with adequate resources. to be fair to the main lenders, all of the strategies generally acknowledged the need to address the unsustainable mortgage group and to develop loan modification techniques. but our feedback is that this work needs to be accelerated. the keane report provides the high level menu of loan modification options and we are encouraging the principal lenders to develop their own modification techniques. some of these, designed mainly for lower income households, involve the use of public money. an example would be keane ’ s “ mortgage to rent ” scheme. it may well prove infeasible to apply such approaches on a large scale. of wider application, i suspect would be some form of what the keane group called “ split mortgage ” and / or “ shared equity ” a similar concept. there will be different variants of these, which can be calibrated in different ways, which will have different degrees of capital cost to the banks ( and for the covered banks, to the taxpayer ). for the borderline insolvent homeowner, loan modification will have consequences, perhaps such as partial loss of ownership or remaining liability for the warehoused component. certainly there will have to be a commitment to stick to a very tight budget and to make significant adjustments to living standards. and it is important to be clear that there is no legal obligation on banks to modify loans in all cases and in some cases repossession or voluntary surrender will take place. in particular, delinquent borrowers who refuse to engage realistically with the lenders to reach and comply with an affordable modified payment plan can expect those consequences. quite clearly this is not a question of mean - spirited lenders. the capital injected by the government into the banks is to cover loan losses that cannot be avoided. it has not been calculated to provide for relief in respect of loans that borrowers are able to service. to date, the lenders ’ strategies have been largely lacking sufficient operational targets or key performance indicators. that is something one would have expected for such a centrally important project for each of the banks. this is an area

is that caruana's predecessor, new york federal reserve chairman william mcdonough, left large shoes to fill. mcdonough's unexpected retirement in june left critics wondering whether his successor would be able to hold together a global project. “ there were definitely advantages in having a superpower in charge of this committee, ” said the basel committee member. karel lannoo, head of the brussels - based think tank center for european policy studies, said caruana is a strong player with anti - establishment nuances who should be able to push through the accord and even impart some spanish character to it. “ caruana is, in the spanish context, very well regarded, ” said lannoo, a frequent adviser to the european commission and a member of the academic european shadow regulatory commission. “ he was a broker. he knows market risk. he worked on the trading floor, ” lannoo said. lannoo and the shadow committee are critics of the accord, saying its overly complex nature may in fact heighten systemic threats by “ capturing ” regulators who would be required to take a more active role in banks'daily operations. revolution in the making the new accord, now over five years in the making, represents a revolution for the banks who will adopt it. it leaves the first accord's simple dictates behind and offers a menu ranging from basic to complex. a second basel committee member, who also requested anonymity, said he had few doubts that the technocrat caruana was the right choice for the job due to his expertise in such a complex field. “ this is not new territory for jaime, ” he said. indeed, some critics of the accord say a technocrat like caruana is just who is needed to make sure that the byzantine draft is moulded into shape before being finalised by the end of this year. caruana, a 51 - year - old valencian, studied telecommunications engineering and then qualified as a government economist. those who have worked with him say he is a real technology fan, which given his studies is no surprise. the current controversy over the basel reform is probably a source of discomfort for caruana, who keeps himself to himself. “ he is very simple and discreet, and shys away from limelight, ” says a former colleague. some feared that the independence of the bank of spain might be brought into question when caruana was named governor in july 2000,