exchange rate decided? when, or if, the time approaches for a swedish decision to join the monetary union, it will thus be necessary to consider the question of participating in erm ii. since the beginning of this year, the matter of whether and when the krona is to be included in the exchange rate mechanism is something that the government decides, albeit in consultation with the riksbank. at the same time, the krona ’ s central rate with the euro in erm ii and the margin for fluctuations are matters for which the riksbank is accountable. so in practice, the new allocation of responsibilities means that the government and the riksbank have to reach a consensus on the terms for the krona ’ s participation in erm ii. but these terms are not decided by sweden alone. the central rate and the band width will be negotiated between sweden, the countries in the monetary union and the non - euro countries that are members of erm ii. the negotiators include finance ministries as well as central banks. it is clearly important that sweden and the other countries try to agree on an exchange rate that is as reasonable as possible. this is because the central rate that is set for participation in erm ii will very probably be the rate for the krona ’ s subsequent conversion to euro on joining the monetary union. consequently it ought to be an exchange rate that is commensurable with real economic equilibrium ; in other words, the rate the krona would have when sweden ’ s economic resources are being fully utilised without this generating inflationary pressure and external debt is sustainable in the long run. at the same time, the problem of arriving at a reasonable rate should not be exaggerated. any nominal exchange rate whatever could, in principle, be said to be commensurate with real economic balance. via adjustments in wage and price levels relative to the rest of the world, the economy will sooner or latter attain its real equilibrium exchange rate. but the question, of course, is how extensive and costly the economic adjustments would be. evidently, the goal must be to keep such costs to a minimum. all the negotiating parties have a strong practical interest in setting the rate correctly. an unduly weak krona would admittedly favour swedish exports, but it would be disadvantageous for the competitive position of the other countries and could also lead in time to higher inflationary pressure in sweden. an unduly strong krona, on the other hand, would benefit

basis for further deliberations. the frequency, scale and intensity of audits depend on the size and risk content of the bank. in my opinion, global players therefore require more intensive supervision, since they are more significant in terms of systemic risk. two developments are prefigured by the supervisory review process. in the first place, banking supervision will become more individual, since the respective risk profile of the bank will be monitored by the supervisors. that will be as specified with some individual supervisory measures. secondly, the road is being traversed from a banking supervision primarily based on compliance with quantitative standards to a qualitative form of banking supervision. as is already the case, the supervisory review process may lead not only to the imposition of conditions in specific cases but also to explicitly higher capital ratios, exceeding the present 8 % limit. this option must be available as a kind of last resort. xi finally, the basel edifice is completed by a third pillar, which calls for more extensive disclosure requirements on the part of credit institutions − requirements which are intended to make it easier for the markets to assess risks. enhanced market transparency is supposed to contribute to greater market discipline. here, too, there are again direct connections with the other pillars of the accord. as far as the issuing of disclosure standards is concerned, however, banking supervisors have no autonomous powers of their own ; hence only the legislature can take the appropriate action here. but the supervisors could elaborate a catalogue of requirements which might constitute the basis for legislative measures. xii ladies and gentlemen, i have attempted to sketch in for you the outlines of a new, uniform global supervisory standard. let me briefly sum up the principal points once again. 1. more sophisticated risk appraisal and measurement, by the use of external and internal bank rating systems and risk - mitigation techniques. 2. external and internal rating systems should be systems of equal value which, in principle, should be accessible to all institutions and, in my opinion, should be introduced simultaneously. 3. explicit capital charges for risks that have hitherto been included implicitly in credit risk, for instance, interest - rate risk and other risks. 4. progress towards a qualitative form of banking supervision based on the individual risk profile of banks. 5. enhanced market transparency, and thus a buttressing of banking supervision by market discipline. all these measures should enable supervisors and the market alike to recognise future risks at an early stage, so as to be able to respond in