For example, risks arising from securitisation activities – especially so-called resecuritisations – as well as certain trading book exposures were not sufficiently captured. I could also point to exposures to complex financial instruments that experienced severe declines in value because of impaired liquidity.
The Basel Committee’s response therefore is to enhance the Basel II framework so that risks are more comprehensively and more accurately covered. Second, there needs to be a solid capital base backing these risks. We will achieve this by strengthening the quality, consistency, and transparency of the highest forms of Tier 1 capital.