an important element of basel ii. full implementation of pillar 2, would impose a significant enhancement in basel core principle compliance. under pillar 2, a bank would be required to maintain a capital cushion above the regulatory minimums to capture the full set of risks to which the bank is exposed. these include liquidity risk, interest rate risk, and concentration risk. the third pillar of basel ii is market discipline. the idea is that market forces ought to supplement supervisors ’ oversight of financial institutions. in this way, banks learn from investors how their risks are perceived, and supervisors learn from the market as well. the keys to market discipline are informational transparency and well - functioning financial markets. sound accounting systems are necessary for informational transparency. these issues are important and can make a difference to how investors evaluate firms ’ capital positions. under pillar 3, banks will be required to disclose to the public the new risk - based capital ratios and more - extensive information about the credit quality of their portfolios and their practices in measuring and managing risk. such disclosures should increase transparency and improve market discipline. there are several approaches to measuring credit risk. the standardized approach and the internal ratings based approach, either foundation or advanced. the standardized model of basel ii relies on impartial actors to assist in the calculation of regulatory capital. here, i make reference to the external credit assessment institutions. the higher the penetration of rating agencies and the more confidence there is in the workings of the rating market then the more attractive the approaches become relative to the new accord. the internal ratings based approached relies on the banks ’ skills and the banks ’ judgments but requires more input from the organization. basel ii also sets standards for risk measurement and management and for related disclosures that will give banks ongoing incentives to improve their practices. the proposal appears to be complex but this is mainly a question of familiarity. it would not have been appropriate to continue to assess complex matters with simple approaches which do not grapple with all the issues. commercial banks will desire to avoid unnecessary regulatory costs. we will be discussing with banks over the next several weeks which methodology they will be using. while we would wish banks to exercise preference, this may not always be possible in the light of the cost of overseeing too many systems at the same time. it may therefore be necessary to fine - tune our approach further to economize on resources. there were a number of areas of basel i which we needed to make sure were in place before moving on to basel ii

also have diminished somewhat. still, hicp growth rate has accelerated on a year - on - year basis in april to 2. 9 % and possibly the figure for may will not be very good. but these developments mainly seem to be generated by temporary factors that should substantially diminish over next 12 months to permit inflation to go back below the level of 2 % which is our ceiling for the definition of price stability. however, evidence as well as global uncertainties regarding the international context also require continuous monitoring of growth trends and wage developments. temporary factors could still affect price developments for some months to come : health concerns related to meat consumption and the consequences of the outbreak of foot - and - mouth disease could continue to affect unprocessed food prices. furthermore, pass trough of past rises in oil prices and the depreciation of the euro are likely to affect price developments for some months. let me now turn to the question of international financial architecture. impressive progress has been achieved in the recent years to reinforce international financial stability and to enhance prevention. we must continue our efforts toward further progress as regards the reform of the financial architecture. i also think that fruitful lessons can be drawn from the assessment of the new characteristics of financial markets and their impact on financial stability. 1. we must pursue and reinforce our efforts towards a renewed international financial architecture. these efforts should tend to improve prevention and management of financial crises. 1. 1 strengthening prevention strengthening prevention calls for parallel efforts from all actors, international financial institutions, investors and public authorities. prevention lays on appropriate surveillance and adequate macroeconomic policies. 1. 1. 1 as regards surveillance, much progress has already been achieved : - in the institutional field, important changes have recently occurred : let me mention the impressive work carried out by the financial stability forum in 1999 ( e. g. reports on highly leverage institutions, capital flows, incentives to foster implementation of standards ). i could also quote the work of the g20 or the international monetary and financial committee. together with the existing institutions such as the imf, the world bank and the bis at the international level, we have probably now an efficient structure to cope with current and future international financial challenges. - the implementation of internationally acknowledged standards will contribute to reduce emerging market economies ’ financial vulnerabilities and, together with enhanced transparency, improve market discipline and market participants ’ ability to better assess the risks of their investment decisions. · many efforts have already been achieved with the design of 65 internationally agreed standards