##able. new entrants and existing staff are provided necessary training through nibaf and inclusion of suitable material on the subject would be helpful in creating awareness and understanding of the mechanism. we would obviously welcome suggestions of kcdr in finalizing curriculum and imparting training. issuance of policy directives to banks : it would not be appropriate to prescribe a particular way of seeking remedies especially keeping in view the regulatory role of sbp. the directives issued by sbp are binding on banks and as a matter of policy we can facilitate, encourage but not force banks to avail facilities of kcdr. this is the decision which parties have to make themselves. otherwise, directives issued by sbp run counter to the spirit of adr / mediation which is necessarily a mechanism based on mutual consent of the parties. mediation under “ terms and conditions ” of various products : we are of the view that pakistan banks association is in a better position to evaluate whether banks should include it as a condition of the agreement or not. sbp is neutral in that it is for banks to decide which option they want to avail in case of disputes. taking advantage of this forum, my message today is same as observed by hon ’ ble court that prior to filing cases in courts, the option of mediation / reconciliation should be explored to avoid unnecessary costs, time and inconvenience. this would not only benefit the parties but facilitate release of valuable resources for the businesses which are critically dependent upon timely availability of funds. further, the court system would be receiving lesser number of cases and hence its efficiency will increase. in my view, mediation has at least the following positive points as compared to formal court litigation : i ) adr enables settlement between the parties with their consent and cooperation. therefore, unlike court case, none is loser but a win - win situation for the parties. ii ) the costs of adr relative to court expenses are substantially low. further, the cost of adr is shared by the parties whereas under court decision loser has to pay costs if allowed by the court. iii ) adr provides solutions quickly, cost effectively and privately as against lengthy procedures of court proceedings, high expenses and no privacy. iv ) adr not only economizes on case expenses but saves valuable time of human resource and management as well as stress related to court cases. v ) the parties set venue and timing for adr proceedings whereas court rules are to be strictly followed for court proceedings. vi

the type and nature of corporate issue and other transactions and delegating its qualitative assessment to external raters. the matrix of risk buckets and weights is considered to have added excessive complexity for less sophisticated banks. the linkage and delegation of quality assessment to external ratings, while understandable, lends excessive confidence on the objectivity and soundness of rating agencies which, in at least developing countries has only thus far rated a small proportion of corporates and issues. notwithstanding, the pillar 1 offers a choice to resort to either a standardized approach ( sa ) which has pre - specified weights or to turn to internal rating based ( irb ) approach which involves a foundation and advanced irb option. these approaches are differentiated on the basis of ( i ) the available in - house risk assessment expertise, ( ii ) the size and product mix of the bank, and ( iii ) overall financial sophistication. there is considerable national discretion for regulators to decide, within the parameters defined under basel ii, on risk weights for different types of finances, treatment of collateral and risk mitigation, etc. the core pillar is bedecked by two other pillars ; and all three pillars are interlinked and intertwined and mutually reinforce each other. pillar 2 ( supervisory review ) underscores need for strengthening the financial institutions ’ internal capital assessment processes to capture risks which remained uncovered under pillar 1 and thus set aside capital in line with the banks ’ risk profile and control environment. the supervisory review process validates the bank ’ s internal assessments by ensuring that the whole array of risks has been taken care of. pillar 3 ( market discipline ) complements the other two pillars by requiring disclosures and transparency in financial reporting to promote market discipline. third, the accord encourages banks to recognize all types of risk and take appropriate steps to mitigate these risks, while providing for adequate capital. besides the credit risk, the accord for the first time recognizes the operational risk, however, the degree of guidance and complexity in measurement provided within the framework for these risks varies. the credit risk ( the risk of default by the counterparty ) is dealt with most comprehensively in the basel ii in line with legacy of the first accord as well as the banks traditional edge and competence in credit risk assessments. the inclusion of operational risk, a fundamental improvement over basel i, captures risks associated with bank ’ s internal control processes and systems and corporate governance policies and practices. operational risk calculation explicitly requires capital for “ the risk of