full load of these other risks, but that has begun to change. both the basel supervisors committee and the international banking community need to address these topics more directly and more satisfactorily. regardless of what regulators and supervisors do, you as bank managers must fully recognize and control your risks. as you make greater progress, so can regulators. in the past, relatively rough rules - of - thumb and traditional practices sufficed in supervising and managing banks. but just as derivatives have allowed you to unbundle risks and to price and structure financial products with more precision, similar technologies and innovations are requiring more precision in almost everything else you do. and also everything we do as bank supervisors. opportunities for arbitrage within financial markets and capital regulations are easily found. what you do within the industry and what we do as bank supervisors must be more closely connected in all respects to the underlying economics. meeting that challenge will keep all of us on our toes. recognizing that supervisors need to relate capital requirements of individual banks more closely to their unique risk profiles, the basel committee ’ s second pillar - the supervisory review of capital emphasizes principles such as these : • that supervisors should expect, and have the authority to require, banks to operate above the minimum regulatory capital ratios • that they should require their banks to assess and maintain overall capital adequacy in relation to underlying risks • that supervisors should review and evaluate the internal capital adequacy assessments and strategies of banks, as well as their compliance with regulatory capital ratios • that supervisors should intervene at an early stage to prevent capital from falling below prudent levels and should require remedial action quickly if capital becomes inadequate. i believe it is essential to have effective supervisory oversight and assessment of individual bank capital as a complement to meeting regulatory capital requirements. this does not mean, however, that supervisors have ultimate responsibility for determining the adequate level of capital at each bank nor that supervisory judgment should replace that of bank management. rather an active dialogue should take place between bank management and supervisors with regard to the optimum levels of capital. pillar ii thus moves the accord beyond a simple ratio - based standard to a more comprehensive approach for assessing the adequacy of capital levels. the supervisory review of capital called for in pillar ii obviously will have resource implications for supervisors around the world and may require significant changes in supervisory cultures and techniques in many countries, both g10 and non - g10. the committee will need to develop guidance for bank supervisors to use when

one might argue that the global reach of major dutch and swiss institutions reflects this motivation, at least in part. importantly, one must ask if global institutions are more successful than their home - bound competitors. at least one private - sector study, from a major consulting firm, suggests that during the ten - year period ending 31 december 1996, most of the global financial services companies did not achieve significantly superior returns to shareholders. nor did they appear to achieve superior revenue growth. i am sure that there will be other studies that attempt to determine the effect of global consolidation on the financial results of the firms involved. in any event, regardless of the presence or absence of financial success, the trend toward a more global financial industry will continue. such market forces will provide a continuing impetus for continued cooperation and coordination among bank supervisors worldwide. indeed, the forces for cooperation will only grow as these trends become more pronounced. the gramm - leach - bliley act issues related to the international supervision and regulation of banks come at a time when we in the united states face new challenges in implementing financial reform and the provisions of the gramm - leach - bliley act. that act has the potential, and indeed the intention, to change substantially the structure, activities, and supervision of financial institutions in this country. many of the foreign banks represented here today operate as universal banks outside the united states and, like many us banks, you have been frustrated by the outmoded restrictions on your banking activities in our markets. after much debate, the us congress enacted legislation that permits banks operating in the united states to expand their activities within a legal and supervisory framework intended to preserve their safety and soundness. as you well know, the federal reserve board recently issued for public comment an interim amendment to regulation y setting forth the procedures for banking organizations to elect to become financial holding companies and avail themselves of the broader powers authorized under the act. in according financial holding company status to foreign banks, the congress instructed the board to apply capital and managerial standards comparable to those pertaining to us banking organizations, giving due regard to the principles of national treatment and equality of competitive opportunity. the rule applies the us bank risk - based capital standards of 6 % tier 1 capital and 10 % total capital to foreign banks wishing to become financial holding companies. it also applies the us leverage ratio to foreign banks, but at the lower holding company level of 3 %, instead of the 5 % ratio required of us banks. to consider differences in banking and accounting practices