thus promoting greater cross border investment. and let me give you a less direct, but nonetheless important example of a regulatory convergence initiative, from my perspective as chairman of the basel committee on banking supervision. as you may well be aware, at the end of the nineties, we embarked on a review of the so - called “ basel accord ”, an agreement reached back in 1988 to determine minimum regulatory capital requirements for international banks. the result of this review, the new “ basel ii ” framework, will, like its predecessor, be applied not only in the thirteen countries which are members of the committee, but in many other countries of the world, including the 25 countries of the european union – in fact, in probably more than 100 countries in total. and basel ii is much more than a capital requirements regime. it is a major shift in regulatory philosophy. first, although it still sets minimum capital requirements, these are based on a menu of approaches with built - in economic incentives to encourage banks to develop and use more sophisticated risk measurement and management systems which can be recognised for supervisory purposes. second, banks are encouraged to conduct their own assessments of their overall risk profile in order to determine whether they need additional capital buffers and / or other risk mitigants. supervisors will evaluate these assessments and both parties will engage in dialogue on the basis of their findings. thirdly, the new regime sets out requirements for increased transparency and disclosure by institutions to the markets. this is intended to leverage the ability of markets to provide discipline to banks to ensure that they are not holding unrealistically low levels of capital. in sum, basel ii will have wide - ranging effects, both on banks and on supervisors, across many countries. many aspects of the supervisory process which are currently subject to different requirements in different countries will be captured within a common international framework for the first time. this will not only help banks that operate on an international basis to establish more convergent information bases across the countries in which they are present. it will also facilitate the exchange of information among supervisors, because we will be speaking a more common language. and, more directly, the transparency requirements will, in themselves, lead to the availability of more, and more comparable, data for market participants and users. both these initiatives are international in nature. however, as i noted earlier in my intervention, information demands also come from a range of sources including at the domestic level, and it is certainly worth looking to see what can be done at this

neither of these projects has been easy. if you consider that the european union is currently made up of 25 countries, you can well imagine that the starting situation was complex, with each country requiring its banks to submit different information. in fact, the differences were not limited to the definitions used by each member state, but also related to the reporting systems, and the technologies and formats used. but i would argue that it has been a very worthwhile initiative, and one that will reap benefits for years to come. increased reliance on business information let me turn now to the third element that i believe is important for success. i believe that regulators should put increased reliance on information generated and used by institutions within their own business. let me set the context for this remark. i don ’ t think it is an exaggeration to say that, over recent years, the basel ii initiative has driven a paradigm shift in regulatory attitudes. regulation used to be something that was rather imposed on institutions “ to be complied with ”, and seen by them as completely separate from their own internal business processes, and therefore an additional cost. but it has been evolving to something which increasingly goes in the direction of recognising and harnessing the best risk management practices of the industry itself, and encouraging institutions to further improve their own risk management practices. as i have already mentioned, basel ii includes explicit economic incentives for institutions to adopt more sophisticated risk measurement and management systems. and to the extent that it is based on institutions ’ own capital evaluation processes, it brings regulatory capital closer to economic capital. such an approach means that regulation becomes less of a separate cost for institutions, which can use the same systems for both business and regulatory purposes. what ’ s more, such regulation can have business benefits, because improved risk management also makes good business sense. i think the same philosophy is applicable to regulatory reporting. in my view, regulatory reporting requirements should, to the extent possible, be based on internal data used by managers to run their business, and should encourage the effective collection, generation and use of this information for internal risk management purposes. there is clearly a cost in asking for information that is not used within the business. but more than this, it may well be that internal information is of better quality, more reliable and more accurate than information generated for “ external purposes ”. to the extent that basel ii recognises internal risk management systems, the resulting reporting requirements should naturally be based more on the internal information produced by those systems