the implementation of basel ii is that the number of supervisory examiners in germany before basel ii was rather low. in 2001 there were about 100 colleagues in bundesbank and bafin performing supervisory examinations. with the introduction of the supervisory review process in the new capital framework we decided to adjust our examiner capacities. this process started in 2002. because of the restructuring of bundesbank the majority of the needed personnel could be provided internally. in order to prepare the new staff for their challenging job bundesbank and bafin started a joint training program in summer 2002. to give you some figures : from july 2002 to july 2004 about 200 colleagues participated in the program. the program consists of training on the job periods and seminars as well, to which many experts from our banking industry accepted to contribute. more than half of the 150 trainers came from outside banking supervision. the program is a revolving one and is still running. for our “ advanced examiners ” we developed special courses in english language which have been opened this year for colleagues from all eu central banks. even as the manpower of bafin and bundesbank has been increased, we will have to concentrate our supervisory activities on banks which are relevant for the stability of the financial system and which operate on an international level. given the big number of very small banks we are not going to conduct a full scale supervisory review process including on - site examinations for all banks on an annual basis. from the supervisor ’ s point of view the supervisory review and evaluation process is not only the review of the implementation of a banks ’ internal capital process as described in principle 1 of pillar 2, i. e. the marisk. another important aspect for supervisors is to make sure that a bank is compliant with pillar 1 on an ongoing basis. let me cover this second part of the supervisory review and evaluation process first. during the last year bafin and bundesbank prepared for the approval process of internal rating systems. the goal was to be as early as possible in a position to conduct on - site examinations of internal ratings approaches. you may imagine, that given the number of 460 banks planning to use this kind of approach as indicated by last summer ’ s survey a supervisory authority faces a major challenge ; especially, since there is a certain risk of coming at the same time. consequently, at the end of last year we provided institutions with application forms and guidance in order to apply for the use of an internal ratings approach. in the light of the large number of expected applications

costs of higher capital requirements are offset by relief elsewhere, namely for the taxpayer – quite apart from the stabilising effects which larger capital buffers have for financial stability. from a microeconomic perspective, one can, of course, well understand that there is resistance to higher capital requirements. that does not mean that such resistance is justified in macroeconomic terms, far from it. or, as mr hellwig put it, “ given these negative externalities from banks using debt rather than equity, there is no reason to refrain from requiring banks to have more capital on the grounds that equity is expensive and the regulation would raise bank ’ s cost of capital. quite the contrary, such a regulation would merely counteract the perverse incentives that are created by the corporate tax system and by the inability of government to commit to not bailing out banks. ” 5. conclusion allow me to summarise my thoughts as four basic propositions. first : the business models of a number of banks underwent a fundamental transformation associated with turning away from traditional business towards investment banking. second : this meant that profitability was subject to a high degree of volatility. third : if we solve the “ too big to fail ” problem, there will then be no reason to forgo the advantages of universal banks. fourth : adequate capital is a key element in achieving financial stability. these propositions might not cover everything, but i see them as vital elements. if these lessons are applied in the reform efforts, we shall already have achieved a great deal. i, at least, shall do my utmost to make this happen. bis central bankers ’ speeches