broader scale. 3. basel ii will become an effective standard at the macro level i believe that basel ii will likewise serve as an effective standard at the macro level, which is the second topic i ’ d like to address today. supervisors and central bankers are increasingly interested in standards that will strengthen the stability of the banking system and of the financial system more broadly. indeed, just across the street from us here at grocers ’ hall, the bank of england is an example of a central bank that is explicitly charged with promoting financial stability. another example would be my own institution, banco de espana. in my mind, three factors will drive basel ii ’ s success as a public policy standard. i have already hinted at one relevant factor. the new framework contains explicit incentives to motivate prudent risk management. banks that qualify to use the more advanced approaches will rely increasingly on their own measures of credit and operational risk exposures when calculating their minimum capital requirements. because these more advanced approaches will align capital requirements more closely with the risks that banks actually face, i expect that banks will seek to develop and improve their risk management processes individually. i would like now to stress the need for an appropriate time horizon, the need to introduce forward - looking approaches, and the importance of avoiding excessive short - termism when assessing risks. it means that risk managers should be very conscious of how risk - drivers change through the cycle and in stress conditions, and incorporate these elements into their decision taking processes. basel ii has been sensitive to these concerns and has incorporated a number of elements such as long - term average calculations, the need to use longer time horizons in the design of internal rating systems and also the need to incorporate stress tests and calculations into downturn conditions. i believe that when risks are correctly assessed, within the appropriate time horizon, and banking systems are adequately capitalised, the financial system as a whole becomes more stable, less sensitive to the ups and downs of the business cycle, and better able to serve as a source of credit and growth to businesses and consumers alike. a second factor that suggests basel ii will be an effective standard relates to the process that the committee used to develop the new framework. the new capital framework emerged from a process involving intense public scrutiny. we conducted three major public global consultations on the new framework and several impact studies. over nearly six years, the committee received hundreds of formal comment letters from bankers, supervisors, central bankers, academics, politicians and many other industry observers.

technology. even the older companies, such as large state - owned enterprises, are adapting to the new technology. the ability to transform a small, open economy is again proving feasible. the key to growth has been the capacity to introduce innovations and get the whole economy to expand on a wide front in connection with the historical ‘ revolutions ’. but as i have shown, growth is not just a matter of the innovations as such ; it also involves their spread. in other words, an invention by itself is not enough. greenwood, j. & yorukoglu, m. ( 1997 ), 1974, carnegie - rochester conference series on public policy, june, pp. 49 – 95. a country must also possess or create the appropriate structures that can enable growth to really get going. perhaps one of the principal driving forces is knowledge, as alfred marshall, the father of modern political economy, already pointed out in the late 19th century. remember that a long time usually elapses before these changes occur in earnest. railways existed as a technical innovation well before the construction of railroads took off. the automobile saw the light of day long before the era of motoring. so the development of new systems and new infrastructure takes time — in some cases a long time. basically it is a matter of societal changes and they do not happen overnight. at the same time, these periods of change are crucially important for economic development. in the centuries before the 1800s economic growth measured as gdp per capita averaged only 0. 1 to 0. 2 per cent a year. at that rate, doubling the standard of living took roughly 500 years. the change was obviously hardly noticeable to a single generation. in the first half of the 19th century, when agriculture was transformed in sweden, gdp growth per capita averaged 0. 4 per cent a year. even at that rate, standards of living did not improve dramatically. from 1850 up to the present, however, per capital gdp has grown at an average annual rate of about 2 per cent, leading to a notable change in our living conditions. with that rate, the standard of living doubles every 35 years, which means that a marked improvement has been experienced by each generation. concluding remarks the points i have tried to make in the light of the historical perspective can be summarised as follows : • despite falling prices for it shares and the economic slowdown in the united states, the it revolution has come to stay. in fact it has only just started. • the development