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

the three main projects identified were : a ) the administration of a quantitative impact study in conjunction with regional regulators ; b ) adoption of the 1998 market risk amendment ; and c ) amendment of the legislative framework as part of wider domestic and regional legislative reforms. the market risk amendment has been completed and will be circulated to commercial banks shortly. some of the legislative amendments are in train and we are co - ordinating our approach to the quantitative impact study with the rest of the region, but we have already done a preliminary survey. bahamas is the only country in the region which seems to be ahead of barbados on implementation and their deadline is 2010. we will therefore need to accelerate the implementation process if we are not to be forced to adjust the date. in developing a programme to advance the implementation of the project we need to focus on the adequacy of training resources for basel - related activities and the capacity of existing technology to manage and assess data. indeed it may be necessary for us to encourage commercial banks to train their staff simultaneously, if we are to be properly equipped. basel ii is not, however, for all banks. we will be issuing guidelines to the smaller banks in the international financial services sector in this regard. generally speaking however, basel ii will require supervisory bodies and banks to work smarter and to use their resources more efficiently, as it places significantly higher burdens on supervisory agencies. we will need the cooperation of all involved. thank you.