responsibility to check that they are doing their job properly. to assist us in that process, we have recently issued a guideline which sets out the standards which we expect the board of directors to observe. one important feature of the guideline is the need for a strong independent element on the board provided by non - executive directors who can bring a fresh perspective to strategic planning based on their expertise and outside experience. having said that, non - executive directors with the right degree of independence and expertise are not easy to find. this is one of the main challenges in corporate governance in asia. although sound strategic direction from the top and good internal systems of control are the primary defences against increased risk, banks also need to make sure that they hold sufficient capital to support that risk. the present capital adequacy regime formulated by the basel committee has been in place since 1988. although it has served its purpose well, it is showing signs of its age and needs to be replaced. the committee is therefore proposing to introduce a new capital accord, the guiding principle of which is that it should be more risk - sensitive. one of the by - products of the new technology is that it does enable banks to measure risk more precisely. the committee intends therefore to exploit this by enabling banks to use an internal ratings - based approach to calculate the credit risk for various types of borrowers and consequently the amount of capital they need to hold. less sophisticated banks will use a standardised approach where the risk weightings for various classes of borrower will be determined by external credit ratings. one feature that is particularly relevant to today ’ s discussion is that for the first time there will be an explicit capital charge for operational risk. this seems to be a timely move given the increased operational complexity introduced by technological change. the new accord will be unveiled for further consultation at the beginning of next year. although its implementation is still a few years away, i would strongly advise banks to start to prepare for it now, for example by upgrading their loan classification systems and beginning to measure and monitor operational risk. the new capital accord will be relevant not only to capital requirements but also to the pricing of risk. if regional banks wish to remain competitive with the global players operating in their territories, they will need to become more conscious of return on capital and the need to economise on the use of capital. there is one other aspect of the changing environment to which i believe banks should pay closer attention. this is what might be termed the rise of

formal regulation ; ( ii ) poor internal governance ; and ( iii ) insufficient regional regulatory collaboration. this was a potentially lethal combination, and when energy and real estate prices fell, triggering depositors ’ and policyholders ’ concerns about the state of the group ’ s finances, the inevitable happened. what started in clico had widespread contagion effects in the region, in particular among the baico subsidiaries located in the oecs. the message from this regional crisis is clear and it is that we must urgently address our weakness to strengthen regional financial stability ( so that we could better deal with financial shocks ). i see the main lessons from the regional crisis as follows : √ the urgent need for all regional jurisdictions to strengthen national financial legislation and regulatory practices. moreover, it is important that jurisdictions coordinate their efforts so as to reduce the risk of regulatory arbitrage ; √ a second imperative is the establishment of a framework to facilitate close collaboration among regional regulators in the regulation of cross - border institutions. there is a proposal for a “ college of regulators ”. it is important that this be up and running as quickly as possible ; and √ the third imperative is the establishment of a national crisis management plan which details how regulatory authorities would react in the event of a systemic financial crisis. admittedly, the development of such a plan raises complex issues, not least of which is the vexing question of whether there should be institutions that are “ too big to fail ”. an examination of the workshop ’ s programme suggests that most of these issues will be covered in the next two and a half days. it is also very gratifying to see the very impressive list of presenters and participants. this should provide for stimulating discussion such that at the end of this workshop we should be able to benefit from new insights for assuring regional financial stability. i would like to again thank the ccmf, cartac and the caricom secretariat for organizing this workshop. participants i welcome you all to trinidad and tobago and wish you all a stimulating two and a half days.