/ service, how do you decide on which activities are remunerative and which are not? how do you decide on your product promotion and pricing strategies unless this information is readily available? why have certain products when there is no demand for them? after all, there is a cost attached to product promotion. as banks are perceived to be offering identical products and services, how does the board / top management set about differentiating their bank from others, unless they have such basic granular details? under rbs, it is essential for the banks to have the capability and infrastructure to support a robust and reliable mis architecture, with data integrity. a data warehouse wherein data flows from the transactional system without manual intervention and is capable of generating various mis reports on all major activities of the bank ( including activity - wise / segment – wise analysis ) is one of the prerequisites for effective risk management. in the absence of a reliable mis, it would be a near impossible task for the bank management to get a true and fair picture of the quality of assets, earnings, etc. risk based pricing of products and services risk - based pricing means determining loan pricing based on the expected loan risk. typically, a borrower ’ s credit risk is used to determine whether a loan application should be accepted or declined. the same risk level could be used to determine the optimal pricing. this, essentially, translates to higher interest rate for a borrower with higher risk and a lower rate for a lower risk borrower. most large banks with suitable risk management and measurement architecture normally have some form of risk - based pricing strategies based on a measure of probability of default. this is, often, not apparent in small or medium - sized banks due to lack of strategy, process and technology to drive consistent results across various loan portfolios. banks without a formal risk - based pricing approach, typically, use a flat - rate pricing model. the inherent problem with flat - rate pricing is that the bank will end up having a higher share of lower credit quality loans since the higher credit quality borrowers can obtain better pricing at other banks ( i. e. those offering risk - based pricing ). banks are required to maintain capital to cover the risks they assume. as capital always comes at a cost, they need to have a differentiated risk - based framework for pricing of products and services. this involves costing, a quantitative assessment of revenue streams from each segment, activity, product and service, and an efficient transfer pricing mechanism which would

mr george ’ s closing speech at the euromoney international bond congress speech by the governor of the bank of england, mr e a j george, at the euromoney international bond congress in london on 10 / 02 / 99. thank you, padraic. i wasn ’ t quite sure what you had in mind when you asked me to wind up this congress once again this year. i couldn ’ t remember what i ’ d done to wind you all up last year! but i am happy to join you anyway at what has become – in five short years – an unmissable event in the calendar for anyone with an interest in the international bond markets. and what an extraordinary year it ’ s been since we all last met here. despite all the upsets – beginning in asia, then russia and most recently brazil – which had everyone scrambling for liquidity and desperate to reduce risk, it proved, on ifr ’ s figures, to be a record year for international bond issues, with total issuance rising by some 17 % to over a trillion dollars equivalent. that can ’ t have been bad for fees! and altogether it suggests you had a pretty good year – apart from those of you who chose to go on holiday in august leaving someone else to look after your long positions in russian bonds. inevitably issuance by emerging market economies fell away, but issuance by supranational and sovereign borrowers in aggregate still accounted for some 30 % of total issuance. at the same time, higher rated corporate borrowers took advantage of lower yields to strengthen their balance sheets, accounting for 45 % of total issuance. this was despite a general widening of credit spreads – which though they have come back some way from the peak levels of the autumn are – and are likely to remain – substantially wider than before the emerging markets crisis, reflecting a more sober assessment of relative credit risk. against that, the bond markets generally benefited substantially from continuing low inflation and a further decline in inflationary expectations, so that yields have declined in virtually all the main currency sectors. in terms of government bonds they have come down by 100 basis points in the us, by 150 basis points in bunds, by close to 200 basis points in the sterling gilt market, and even by over 100 basis points in japan before yields there began to back up late last year. borrowers have been attracted by lower nominal borrowing costs ; and investors in the market have been attracted by the prospect of rising values as