to take on more risk. as a result, the basel accord capital ratios are an increasingly less reliable guide to the true capital strength of the firm and thus are less and less useful to both the public and private sectors. importantly, the banking institutions for which the existing capital standards are the most distorted are in many cases the very institutions whose disorderly failure would be most likely to impose systemic risks. in light of these developments, in my judgment, it is of the highest priority that, for the most financially sophisticated and complex banks, we make the capital standards more reflective of the risks that they are, in fact, taking. as i hope everyone in this room is fully aware, such efforts are well under way. in january of this year, the basel committee on banking supervision released its second consultative paper for the new basel capital accord and asked for public comment by the end of may. let me emphasize that we really do need and desire public comment on our proposals. no one in the supervisory community believes that we have solved, or even at this point know how to solve, all of the problems with the 1988 accord. success will come only if both supervisors and private market participants bring their best ideas to the table. moreover, we fully expect that the new accord, like the old accord, will be a living document that is revised as technology and other aspects of the economic environment evolve. let me also acknowledge that the new capital proposals are complex, and the documentation we released in january is, to say the least, daunting. but this complexity reflects the reality that, at least for a small number of generally large and internationally active banking organizations that are engaged in a wide range of traditional and not - so - traditional banking activities, modern risk taking and risk management are complex. moreover, risk management is increasingly susceptible to quantification and statistical analysis. the new accord attempts to respond to these facts for those relatively few institutions to which this reality applies while making only minor changes to the existing capital standards for the vast majority of banking organizations. indeed, an important reason for the new accord's complexity is that it proposes three alternative capital standards to allow for a wide range of needs and risk management practices at individual institutions and for the evolution of both over time. a second priority for bank supervisors is to continue to develop procedures that make sure no bank is too big to fail in these senses : that stockholders can lose all, that existing management can be replaced, that uninsured creditors can suffer losses

some specific practices designed to enhance current disclosures. these include quarterly disclosure of some market - risk information now disclosed annually, and enhanced quarterly disclosures about credit concentrations and credit quality. although it is still too early to say for sure, i am optimistic that the recommendations in this report will lead to improved disclosure practices at our largest and most complex financial institutions, and perhaps others. i would also note that the federal reserve staff is developing recommendations for how reviews of disclosure practices could be included in the supervisory process. on a slightly different front, bank supervisors have substantially stepped - up their efforts to use market information in supervisory surveillance of the lcbos. for example, last summer, fed staff began providing regular reports to supervisory personnel on the subordinated debt spreads and expected default frequencies derived from stock prices for selected lcbos. these reports also provide information designed to help supervisors interpret whether changes in an institution's debt spread or expected default frequency are significant. early feedback from line supervisors has been quite positive. indeed, the board has instructed supervisory and research staff to devote substantial efforts to improving our ability to use market information in our surveillance activities. the importance of using market information as an aid to supervisory surveillance was a major recommendation of a report to the congress, " the feasibility and desirability of mandatory subordinated debt, " submitted by the board and the treasury department late last year. in that report, the board, the occ, and the office of thrift supervision promised to continue and to enhance their " use of data from the subordinated debt, equity and other markets to evaluate the current and expected future condition of large depository organizations. " in addition, the agencies pledged to continue monitoring both subordinated debt yield spreads and issuance patterns at individual institutions. neither the board nor the treasury recommended adopting a mandatory subordinated debt policy at that time, although the door was left open for possible future action. i know this is a disappointment to some, including at least one member of the panel here today. indeed, i have also expressed an inclination to move in this direction. in the end, however, the board and the treasury judged that the evidence in favor of a mandatory subordinated debt policy was simply not strong enough to justify its adoption. we came to this conclusion for three broad reasons. first, because the current market for subordinated debt already provides measurable market discipline, the marginal benefits of a mandatory policy are very uncertain. second, all of the complementary policies that i discussed in the first part