the members. even if all supervisors cannot participate directly in the work of the committee, all are given the opportunity to comment before our products are final. the issues the ilg is currently working on were suggested by the non - basel committee members. these issues include risk - based supervision, provisioning and microfinance, which i touched on earlier. this helps the entire supervisory community to have a common understanding of the issues. the development of sound standards is only the first step and the critical next step is implementation. supervisors must diligently implement the standards and consistently ensure that banks are adhering to and practicing the standards. this is another of the lessons learned during the crisis. sound fundamental principles of credit and liquidity risk were not practiced. to help improve implementation of our sound guidance and standards, the committee has broadened the mandate of the accord implementation group. the new standards implementation group ( sig ) will continue to concentrate on issues relating to basel ii implementation but will also focus on all risk management guidance and standards. conclusion i hope my remarks this morning have given you a sense of the direction in which supervision is moving. the stress witnessed over the past two years revealed major weaknesses in risk management or supervision that were not previously identified. there have certainly been a number of lessons that can already be drawn from this crisis. for supervisors, this includes greater focus on taking a system - wide approach to supervision and identifying potential regulatory gaps. it has also reinforced the committee ’ s longstanding commitment to crossborder cooperation. the crisis has focused the spotlight on capital adequacy and strong liquidity and has spurred extensive consideration of ways to mitigate procyclicality. the financial crisis has also exposed many egregious examples where bankers have strayed from the basic principles of risk management and supervisors did not sufficiently follow - up to ensure implementation. getting “ back to basics ” means banks and supervisors need to ensure risk governance and supervisory frameworks are underpinned by a strong foundation. in the case of supervisors, these are the basel core principles. the crisis has reminded us of the importance of sound standards and has underscored that this must be accompanied by implementation and rigorous supervisory follow - up.

regard, the assessment criteria concerning credit risks were revised to make clear that they include counterparty risks associated with various financial instruments. before we look to see what the future holds for risk management or supervision, it is essential that bankers and supervisors first make sure that a sound foundation is firmly in place. for supervisors, this foundation is the core principles. current areas of supervisory focus let me now say a few words about weaknesses that came to light during the crisis and which are likely to influence bank supervision in the future. the first of these relates to the need for supervisors to take a broader system - wide approach to regulation and supervision. while strong supervision of individual banking institutions remains essential, supervisors need to devote more resources to understanding interactions among banks as well as between the banking sector and other financial sectors. the basel committee will be exploring the practical ways to implement such a “ macroprudential approach ”. this more comprehensive approach to supervision and regulation will help reduce systemic risk more broadly. it will also enable supervisors to focus their limited resources on those supervisory and regulatory activities that contribute most towards making the domestic banking and regional financial system more resilient to stress. another topic of high interest relates to “ regulatory gaps ”. the crisis has revealed that nondeposit taking institutions could be a major source of systemic risks. the first step for financial sector supervisors is to identify any regulatory gaps in their financial systems. the next is to employ the suitable supervisory response, which may range from traditional prudential tools, such as capital requirements, to enhanced disclosure and transparency. we need to take a fresh look at these issues so that the activity of the unregulated or underregulated players – such as mortgage brokers, mortgage companies, hedge funds or others – are subject to adequate oversight commensurate with their potential to pose systemic risk. this in turn will reduce pressure on the core banking sector and help prevent a lowering of bank standards or practices in good times. the question of whether or to what extent supervision is necessary is a difficult one. to give one example relative to this region, the basel committee has already started to reflect on the supervision of deposit - taking, microfinance institutions. we recognise that some of these institutions may be regulated differently from banks as long as they do not hold, in the aggregate, a significant proportion of deposits in a financial system. but at the same time, these organisations need some form of regulation commensurate to the type and size of their transactions