framework by taking into account, the local banks ’ state of readiness, local conditions and practices consistent with the nature, complexity and materiality of the local institution ’ s activities. this is also the reason for providing a breathing space for thrift and rural banks in implementing basel ii. the bsp has lined up certain projects which involve the study of the applicability of certain basel ii requirements to local conditions. these projects are expected to culminate in a set of comprehensive guidelines for banks which we plan to release not later than end - 2006, for implementation in 2007. as you may be aware, pillar 1 of basel ii proposes standard and advance approaches to credit and operational risks. universal / commercial banks are expected to implement the standardized approaches to basel ii by 2007. however, implementation of the more advanced approaches is not expected to occur until perhaps 2010 to allow banks time to build - up reliable historical database to estimate default probabilities and other variables as important inputs to the advanced models. foreign banks whose head offices are using the advanced approaches, will be allowed to use them provided that they can show that their models are suited to domestic conditions. with regard to pillar 2, we will continue to push banks to improve their risk management practices and risk assessment capabilities and corporate governance. with respect to pillar 3, the appropriate disclosure requirements under basel 2 are targeted by 2007. bsp ’ s view of the importance of risk management and sound risk management practices on the topic of the importance of the risk profession and risk management practices in the philippines, i believe this could be best approached by presenting our views on the significance of risk management and our expectations from risk managers. • risk management is more than a regulatory reporting and compliance exercise ; it is a necessary risk - reducing tool to promote long - term profitability and stability of the firm and enhance the competitive advantage of firms. we encourage banks to have the flexibility to use their internalmodels not merely for computing the level of capital needed to absorb possible losses inherent in their activities, but to encourage them to make rational decisions on the basis of risk and return considerations. good internal models provide timely information on how much risk the bank is taking in order to achieve specific business objectives. internal models must also allow banks to compare and select, on a timely basis, from among the alternative business opportunities or strategies not solely from the profit angle but also from a risk standpoint. the philippine adoption of basel ii will certainly obligate banks to cover more types of risks and

s confidence and establish the independence necessary to serve our vast and diverse country of bakers and bankers, farmers and financiers, and manufacturers and merchants. it took congress nearly 80 years to try again to establish a central bank. this time congress and president wilson agreed upon a uniquely american governance structure – a decentralized, central bank. to balance political, economic, and geographic interests, congress created the federal reserve system made up of regional reserve banks with oversight provided by a board of governors in washington, d. c. this structure helped to overcome political and public opposition stemming from fears that a central bank would be dominated either by political interests in washington or by financial interests on wall street. bis central bankers ’ speeches the federal reserve act formed a reserve bank organization committee to divide the country into no fewer than eight and no more than 12 federal reserve districts. almost immediately after the law was enacted, the committee started receiving letters and telegrams from local business owners, bankers, farmers, and others, who were all making a case for where they wanted a reserve bank to be located. the committee held meetings in 18 cities before submitting a report to congress in april 1914, naming the final 12 cities and districts. the federal reserve bank of philadelphia was designated as the regional reserve bank for the third district, an area that includes delaware, the eastern two - thirds of pennsylvania, and the southern half of new jersey. these reserve banks distribute currency, act as a bankers ’ bank, and generally perform the functions of a central bank, which includes serving as the bank for the u. s. treasury. the 12 regional reserve banks are deeply rooted in our nation ’ s communities, which ensure that the federal reserve stays in touch with main street. the reserve banks all have boards of directors, many also have branch boards, and all have advisory councils and other mechanisms to keep abreast of conditions in their regional economies. this rich array of information and the diverse views from around the country contribute to a mosaic of the economy that is essential as we formulate national monetary policy. of course, most people associate the fed with the determination of monetary policy. within the federal reserve, the body that makes monetary policy decisions is the federal open market committee, or the fomc. here again, congress has designed the system with a number of checks and balances. since 1935, the composition of the fomc has included the seven governors in washington, the president of the new york fed, and the presidents