be addressed. to improve the comparability of the methods used to calculate the capital requirements, the basel committee is aiming to curtail banks ’ leeway in weighting risk. for example, it is hard to assess the probability of default for low - default portfolios which include exposures to sovereigns, large companies or banks because – as the name suggests – the respective credit events are very rare. to some extent, the calculation of regulatory parameters for such low - default portfolios falls under what is known as the “ turkey illusion ” : imagine you are a turkey. every day you are approached by a man who feeds you. what kind of mental model of what happens when he appears do you think you ’ ll build up? however, thanksgiving is coming … measures under consideration to reduce the leeway for banks using an internal - ratings based approach include the implementation of floors based on the standardised approach, restrictions on using internal estimates of certain parameters for risk calculation purposes, and the exclusion of certain asset types from the model - based approach. efforts are also underway to make the standardised approach more risk - sensitive. however, it should be noted that using different methods to calculate risk - weighted assets is not a problem per se. to some extent, deviations are acceptable and reasonable ; otherwise we would ultimately be calling into question the very rationale of the internal models - based approach. bis central bankers ’ speeches 3. beyond basel iii when basel iii is fully implemented, regulatory capital requirements will be significantly higher and tougher than under basel ii, and the financial system will be more stable than before. a typical credit institution will have to achieve a capital ratio of 8 % plus various buffers. but will that be enough? to give a profound answer to this question, we would first need to have an idea of what would be an optimal, or at least an adequate, capital ratio. academic research on this subject is not very broad. however, a recent study by several central bank economists found that a capital ratio of around 11 % would be a reasonable figure. 2 that number exceeds the basel iii minimum requirement but falls well short of “ more radical proposals ”. of course, there is a trade - off between the benefits and costs of higher capital requirements which lies at the heart of the optimisation problem in the study i just mentioned. on the one hand, higher capital requirements reduce bank leveraging, the risk of bank failures and the implicit subsidies given to banks on account of deposit insurance

rules across national borders. the financial stability board ’ s stringent oversight and regular reporting to the g20 will play a key role in this regard. 4. conclusion ladies and gentlemen the good news, as far as i ’ m concerned, is that the path we have taken to regulate the financial sector is the right one. now we need to stick to this path until we reach our destination. and i think a somewhat brisker pace would certainly not go amiss. as for my speech here today, i would now like to return to my introductory remarks on the verein fur socialpolitik and on academic study. sound regulation is built on robust scholarly foundations. and these, in turn, are the outcome of academic discourse – exchanging ideas means disseminating them ; discussing ideas means refining them. gustav schmoller, one of the co - founders of the verein fur socialpolitik, once said that a frank debate on conflicting convictions and principles cannot harm a cause ; it can only benefit it. on that note, i hope to see many more lively debates in the future, and the verein fur socialpolitik provides an ideal platform for such academic discourse to thrive. and i am delighted that we will be awarding the gustav stolper prize this evening to an outstanding scholar – one who does not shy away from debate, a quality which has enabled him time and again to provide important input for policymakers, notably so in the prevailing crisis but at other times as well. but i do not wish to pre - empt the awards ceremony itself and therefore thank you for your attention. bis central bankers ’ speeches