financial distress. but more importantly, when all banks have the proper incentives to manage their risks appropriately and hold adequate levels of capital, we believe that the entire financial sector becomes more resilient, less sensitive to the ups and downs of the business cycles, and better able to serve as a source for the sustainable growth of the broader economy. that is our motivation for proposing the adoption of a new basel accord, which i will discuss this morning. i ’ ll begin with a few words on the conclusion of the third consultation period and a short summary of the major themes we gleaned from the comments we received. since we have discussed the new capital requirements themselves extensively over the past several months, i would next like to address some of the other equally important issues that the bba and others raised in their comment letters. the conclusion of the third consultation period allow me to begin with a report on the very busy summer we had in basel. it ’ s fair to say that we received more responses on the third consultative paper than we expected. over 200 comments were submitted by the conclusion of the comment period in july though that was less than the 250 comments we received on the second consultative document two years ago. what was not surprising was the depth of interest in the proposals and the considerable degree of thought and care that respondents demonstrated in their letters. in this regard, the committee owes a debt of gratitude to the many members of the industry and the public who have supported our work over the past several years. the considerable time and attention that especially the bba and its members have devoted to the development of the new accord are evident in the high quality of your comments and suggestions. you have offered constructive thoughts and creative solutions. you have shared data on technical issues, and you helped to make our quantitative impact studies possible. your efforts have helped to inform ours and have assisted us in strengthening the quality of our proposals. we will take the time needed to consider the comments with care to ensure that we meet the high standards you expect from us, which is to develop an intellectually sound and also pragmatic and cost - efficient proposal. the members of the committee and i understand that our efforts must not be unnecessarily constrained by deadlines and timetables, although we all believe strongly that it is important to move forward with the new accord and bring it to finalisation as soon as possible. overall, the comments we received through the consultation were constructive and in many senses positive. indeed, even among

should not be surprising that supervisors will raise capital requirements. respondents attribute what they view as excessive levels of conservatism to different sections of the new accord, including, for example, the calibration of capital requirements to both expected and unexpected losses. the treatment of credit losses is an issue which has attracted a lot of comments and which is, indeed, very important. as you will probably be aware, the present proposals to calibrate on the basis of expected and unexpected losses represented a compromise in the face of cross - country differences in accounting practices and supervisory authority regarding provisioning. but the committee will look into this important issue again, and i am optimistic that we can find a way to improve the present proposal. we have received similar concerns about conservatism in the securitisation proposals and in the treatment of “ double default ” risk, which is the risk that both a borrower and a guarantor would default on the same obligation. other questions have been raised on the incentive structure and on the recognition of insurance within the operational risk proposals. it is perhaps natural that the majority of comments address the minimum capital requirements, or pillar 1. this section of the new accord defines the capital charges in monetary terms for banks ’ exposures and activities. but one should not forget that the new accord is premised on three pillars, not just one. so i would like now to turn to the other two pillars, beginning with the importance – and benefits – of the proposals for the supervisory review of capital and home / host issues. afterwards, i would like to spend a moment on another topic which has been raised in the comments, namely the new accord and harmonisation of accounting standards. finally, i will conclude my presentation with some remarks about the current status of our discussions and our future work. supervisory review & home / host issues as you know, under the new accord the basel committee will recognise formally the role that supervisors play in ensuring that banks manage their risks and their capital needs appropriately. in the past, supervisors in each jurisdiction found their own ways to evaluate capital. this has sometimes resulted in an inconsistent application of the minimum requirements and the adoption of different expectations across countries and an increase in regulatory burden on banks. incorporating supervisory review into the international guidelines represents a genuine breakthrough for all of us. by developing guidelines for the supervisor ’ s evaluation of a bank ’ s internal capital allocation process, the committee believes that supervisors and banks will engage in more focused, more consistent, and