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

prompt detection of errors and deviations from targets, allowing banks to implement corrective measures at an early stage. increased awareness of the risks and early reaction to problems is likely to lead to a smoother adjustment to new conditions or to the correction of mistakes, making decisions less abrupt and time - lags perhaps shorter. this early reaction will be supported by the supervisory second pillar and again by the transparency of the third, which will also reduce the temptation of supervisory forbearance. let me add a few words on transparency. history has also taught us that some of the worst financial crises were ultimately unleashed by sudden bank crises, during which an upsurge of collective panic led individuals to withdraw their funding to banks. a vast amount of analysis and research on these issues has underlined the role of information asymmetries in financial intermediation. indeed, it is no overstatement to say that the presence of asymmetric information between lenders and borrowers in financial markets can explain much of their inherent instability. higher transparency in the information provided by banks on their balance - sheet and risk position, along the lines of that set out in pillar 3, must undoubtedly alleviate such asymmetries, thus reducing the likelihood of an episode of profound disintermediation and, by fostering the public ’ s confidence in the banking system, easing the recovery of the financial pulse in the event of a downturn. before moving to my next point, let me sum up some of the ideas expressed by quoting alan greenspan, who recently said : “ perhaps more critically, better risk management and the associated quantification have the real potential for reducing the wide attitudinal swings that are associated with the historical cyclical pattern in bank credit … ” in a more general conclusion, i think that while the objectives of regulatory policies are different from those of monetary policy, the former should always be aware of the macro implications of their micro policies and the latter can clearly benefit from effective regulations that help ensure a safe and efficient financial system. 4. procyclicality and the link between basel ii and monetary policy so far, i have highlighted key features of basel ii which, in my opinion, will unambiguously tend to make the current terrain in which monetary policy operates a safer place. yet in the course of the work conducted by the committee and, especially, after the release of several consultative documents, there has also been lively and enriching discussion about several potentially negative