In particular, the current broad-brush treatment of credit risk means that the capital requirement in respect of credits of widely varying quality is the same. And though the existing Accord was modified a number of years ago to incorporate capital requirements in respect of market risk, it doesn’t require banks to hold capital against many other risks they run - for example, operational risk, interest rate risk in the banking book, and business cycle risk. So there are many good reasons why there should be a Basel II to address these weaknesses in the current Capital Accord. But while this objective of better matching capital requirements to the risk taken is certainly very worthwhile, it’s really only part of the story. For the aims of Basel II are somewhat broader than this. Basel II is not about creating some wonderful all-singing all-dancing system of capital requirements to keep the banking supervisors happy. It’s not a case of supervisors trying to dictate how banks should manage their business. On the contrary, it’s quite the opposite. For Basel II is an attempt to mould supervisory capital requirements to the ways in which banks actually manage their business. Moreover - and this is the crucial point - it aims to relate the capital requirement not only to the amount of risk they undertake, but also to how well they manage that risk.
Third, we decided to launch a new series of quarterly targeted longer-term refinancing operations (TLTRO-III), starting in September 2019 and ending in March 2021, each with a maturity of two years. These new operations will help to preserve favourable bank lending conditions and the smooth transmission of monetary policy. Under TLTRO-III, counterparties will be entitled to borrow up to 30% of the stock of eligible loans as at 28 February 2019 at a rate indexed to the interest rate on the main refinancing operations over the life of each operation. Like the outstanding TLTRO programme, TLTRO III will feature built-in incentives for credit conditions to remain favourable. Further details on the precise terms of TLTRO-III will be communicated in due course. Fourth, we will continue conducting our lending operations as fixed rate tender procedures with full allotment for as long as necessary, and at least until the end of the reserve maintenance period starting in March 2021. Today’s monetary policy decisions were taken to ensure that inflation remains on a sustained path towards levels that are below, but close to, 2% over the medium term. While there are signs that some of the idiosyncratic domestic factors dampening growth are starting to fade, the weakening in economic data points to a sizeable moderation in the pace of the economic expansion that will extend into the current year. The persistence of uncertainties related to geopolitical factors, the threat of protectionism and vulnerabilities in emerging markets appears to be leaving marks on economic sentiment.