. while this outcome may be inevitable, we do need to think carefully about the possible consequences. first, given that we have to have a simple alternative to the internal ratings approach, it is important that the new accord provides the right degree of capital incentive for banks to progress over time to using internal ratings. it is the committee's firm intention to ensure that the final accord provides modest incentives for banks to adopt the internal ratings approach. there is a conservative bias in the standard approach ; and internal ratings in measuring risks more accurately should, for lower risk business, result on balance in lower capital requirements. the objective of ensuring some capital incentive for banks to progress to risk sensitive measurement does, of course, have to be balanced against the objective of roughly maintaining the overall amount of capital in the financial system. it would be dangerous to financial stability if we gave so large a capital carrot to banks to use the internal ratings based approach that many of the world's most important financial institutions, which account for the vast bulk of global and g10 domestic banking activity, saw a significant reduction of their regulatory capital requirement. it is the need to balance incentives with the maintenance of overall capital levels which makes this issue a difficult one. this, along with a large number of other questions about the impact of the proposals, will be further examined by the committee in the course of a quantitative impact study to be carried out before finalising the proposals. the bank of england has been asked to co - ordinate this work calibrating the impact of the new accord on individual institutions and on the system as a whole. i recognise that the time allowed for this exercise is short, but i hope very much that we can count on the contribution and co - operation of the banking community. turning to the second possible consequence of maintaining a risk insensitive alternative approach, we may find that the combination of having some banks on the irb approach and some on the standard approach will, perversely, introduce a financial stability risk that is not present with all banks on the standard approach. this is that the more sophisticated institutions would have to hold more regulatory capital against weak loans than banks that remain on the standard approach. over time, therefore, we could find that the worst - quality credits could gravitate to those banks which are the least able to assess, price or monitor them. however, i do not wish to suggest such a scenario without also highlighting how we may guard against it. first, of course, the

charles bean : the economic outlook speech by mr charles bean, deputy governor for monetary policy of the bank of england, to the council of mortgage lenders, mortgage industry conference & exhibition, london, 3 november 2011. * * * good morning and thank you for that kind introduction! in the very early part of this year, with the recovery from the 2008 – 9 recession seemingly becoming more solidly based and inflation running at double our 2 % inflation target, the bank ’ s monetary policy committee, of which i am a member, was edging towards starting to withdraw some of the considerable monetary stimulus we had injected during the downturn. indeed, as recently as our may meeting, a third of the committee were voting to raise bank rate from its emergency level of 0. 5 per cent. although i did not join them in voting to raise bank rate, i did view the arguments for and against a tightening as being finely balanced. now, just a few months later, the committee has unanimously voted to re - start its programme of asset purchases financed by the issuance of additional central bank reserves, also known as quantitative easing. in my address this morning, i thought i would say a few words about why the committee ’ s view of the outlook has shifted so dramatically and what we can expect additional purchases to achieve. as i said, earlier this year the recovery seemed broadly on track. but, as time has passed, so it has seemed less secure. that is not so obvious in the figures for quarterly gdp growth ( see left - hand panel of chart 1 ), which have been buffeted by a variety of special factors, such as : the bad weather late last year ; the impact of the tohoku disaster on global supply chains ; and the extra bank holiday for the royal wedding. these last two, in particular, provided a temporary boost to the third - quarter growth rate of 0. 5 per cent released on tuesday. but business surveys and other indicators suggest that the underlying rate of expansion has probably eased ( see right - hand panel of chart 1 ). those same surveys point to only very moderate growth at best in the final quarter of this year. this slowing in growth is not confined to the united kingdom. growth has eased in the euro area and the business surveys are consistent with contraction in the second half of this year ( see chart 2 ). though output growth has picked up in the united states according to the latest official data, the business surveys suggest this may prove ephemeral