Equally importantly, it means putting in place a new framework for overseeing economic policies more broadly – such as competitiveness, current account balances and levels of private borrowing – to prevent problems emerging in the private sector. Let me lay out for you why strengthening the Pact is so important.
As you know, the first pillar of the proposed new accord contemplates that the larger, more sophisticated banks will use internal risk classifications of their credit portfolios, validated by the supervisor, for pricing, loan-loss reserving, and most important, for determining their minimum capital requirements.