. the infrastructure has been set up as a utility, and pricing will be on a cost recovery basis. this infrastructure can then be utilised by any number of commercial ‘ overlays ’ to deliver services that use the npp ’ s real - time clearing and settlement capabilities. the first of these is osko – initially offering person - to - person payments but within a year or so offering payment with document and request to pay. it is also expected that other innovative services will look to leverage the real - time payment capability of the npp. the third relatively unusual facet is the real - time transaction - by - transaction settlement of retail payments 24 hours a day, 7 days a week. australia has had a real - time gross settlement system 3 / 6 bis central bankers'speeches for high - value payments for weekday settlements for the past 20 years. and this is indeed best practice around the world for high - value payments. but not many countries currently provide realtime settlement of retail payments, and even fewer offer it 24 / 7. many fast retail payments services, for example, settle payments in batches through the day or only during business hours. the advantage of utilising real - time settlement in our fast payment service is that it extinguishes settlement risk and removes the need for other controls over settlement risk, such as caps on exposures. the fact that these controls are not required removes some limitations that might otherwise need to be considered by overlay service providers as they design their products. so now we have this world - class infrastructure, what for the future? the first point to note is that it is still early days. given the complexity of the build and the longterm nature of this important piece of infrastructure, the launch was never intended to be a ‘ big bang ’. while there had been extensive testing ahead of launch, including an extended period of live proving, moving into production always uncovers some issues. a cautious approach to ramping up volumes was therefore an appropriate way to manage the operational risks. second, the experience of fast payment systems around the world suggests that volumes will increase quite slowly at first. it took the uk fast payment service around 3½ years to get to 10 transactions per person per annum and swish, the swedish system, just under 3 years to get to this level. there are probably a couple of reasons for the initially relatively slow growth in volumes. it will take some time for people to become familiar with the new system – people

, the regulatory “ well - capitalized ” designation may provide little comfort to supervisors or to the taxpayers we are supposed to protect. that is why, in this country, we have placed a great emphasis on the bank - by - bank supervisory process, as opposed to the formal capital regulations that apply to all banks. just as the most sophisticated large banks have gone through a rapid evolution of their risk measurement, management, and pricing systems, so must supervisors follow suit. at the federal reserve we have ongoing projects aimed at providing supervisors with better tools to assess banks ’ internal risk systems and, ultimately, to make determinations regarding the real adequacy of bank capital on a case - by - case basis. among these efforts is a review of the credit risk aspects of asset securitization at our major banking companies. also, we are studying the possible uses within the supervisory process for the internal rating systems used by almost all large banks. in the past, supervisors made risk distinctions only among and between classified assets, not pass assets. now, we are studying the possibility that future deterioration in asset quality can be foreseen to some extent by changes in the average rating, or the distribution of ratings, in a bank ’ s pass assets. we are also spending considerable effort in tracking and understanding the developments in risk modelling, including the modelling of credit risk. at last week ’ s conference on bank capital, hosted by the federal reserve, the bank of england, and the bank of japan, our economists discussed the prospects of moving to a full - fledged, models - based approach to bank capital standards for the largest banks. in my personal view, moving from a ratio - based capital standard to an internal models based standard for our most complex institutions, should be high on our agenda. for the first time, we would be setting a maximum insolvency probability standard rather than simply a minimum capital ratio. this may be the only avenue before us if we wish to achieve an efficient regulatory system. in the absence of a thorough revamping of the international capital standard, we will continue to be plagued by regulatory capital ratios that, on the one hand, say little about insolvency probability, while on the other hand induce banks to engage in sometimes inefficient regulatory arbitrage simply to avoid an inherently uneconomic capital rule. please do not misinterpret my remarks. i believe, like almost all risk practitioners, that there is no substitute for good