important step in getting a new approach in place. but as that step is taken, other critical actions must then occur - in particular rulemaking processes, and preparations by the supervisors and the industry for the new accord. with respect to the former, in each country or set of countries, processes to establish specific rules must occur to ensure that more local issues are addressed in an appropriate manner. in the united states, as in the eu, that process will be a very formal one. while the national rulemaking is going on, banks and supervisors around the world will also need to think through the practical implications surrounding implementation. to be sure, implementation of the new accord will require a substantial resource commitment on the part of both banks and supervisors. however, i think it is important to emphasize that the efforts banks will need to undertake to comply with basel ii build, to a very significant extent, on the good work that many large and well - managed banks already have in train to improve their own risk management and measurement approaches. for example, many banks have for some time been devoting increased attention to the tracking of loan performance, and to the more sophisticated assessment of their loan quality. further, banks have been analyzing their managerial processes - making sure they have the right system of checks and balances, with appropriate use of independent experts who would not gain from overly favorable assessments. time and effort has also been invested in developing richer and more meaningful data on past, and likely future, credit performance - data that are needed to fuel management information and control systems for senior management use. i expect that much of the cost to banks of adopting the advanced approaches of basel ii will come from pushing ahead on precisely these types of initiatives. this is not to minimize the costs involved in coming into full basel compliance, but rather to emphasize the extent to which bank risk management and supervisory capital requirements share common objectives in pursuit of the benefits that sir andrew described. those benefits - both to individual banks and to the financial services sector more generally - are real and valuable. we know all too well the costs to society of bank weakness and failures. as the largest banks continue to grow, to prosper and to pursue new opportunities, they must simultaneously make the investments required to understand and manage their existing risks more fully, and to address any new risks appropriately. likewise, the new framework is providing supervisors with both opportunities and incentives to enhance their ability to identify and respond to risk in the banks they supervise. i will discuss the challenges for individual supervisors

be summarized as falling into three broad areas : first, the development of strong corporate operational risk governance and management structures - structures that include business line integration into a firm - wide process ; second, the incorporation of qualitative factors such as control self - assessments into the overall capital measurement process ; and finally, loss data quantification, which includes scenario analysis. our review of those major u. s. banks that intend to adopt the ama indicates they are clearly in various stages of preparation. however, most of these institutions already have in place, or are well along towards establishing, a corporate level operational risk management function, with firm - wide policies for managing and assessing this risk. moreover, many firms already have in place good, and improving, firm - wide control self - assessment methodologies. finally, an increasing number of banks are now turning their attention to collecting internal loss data in a consistent manner across the firm. some have already been collecting such data for a year or two and some have been particularly effective at mining their existing historical loss experience for certain risk types. a few leading institutions have made real progress in pulling all this together - by piloting operational risk quantification methodologies that combine the quantitative and qualitative elements of the ama into an overall economic capital assessment for operational risk. while there is much work still to be done at many institutions, those banks that have obtained senior management buy - in to embark on this approach have been able to move ahead fairly rapidly. in addition, these institutions have found significant value in the process of rolling out such a framework. the benefits include greater risk transparency within the firm, greater cost efficiency, and ultimately, less exposure to large losses, both in terms of dollars and additional reputational knock - on effects. challenges for supervisors i've focused on the challenges banks will confront in implementing the new accord. let me now spend a few moments discussing how our supervisory approach is also likely to evolve over time. naturally, allowing banks to rely on internal models in determining their capital requirements has led, and will continue to lead, to changes in our supervisory process. fortunately, we do have some experience on which to draw. in 1996, under the " market risk amendment " to the original basel accord, qualifying banks with large market risk positions were first permitted to incorporate internal estimates of the associated risk in their regulatory capital requirements. when determining whether a bank may rely on its market risk model for capital purposes, our examiners have had to evaluate the technical under