First, have the proposals achieved enough risk sensitivity? And second, do they achieve too much risk sensitivity, particularly in the context of the debate about whether ratings amplify procyclicality? As I said earlier, the new Accord has been designed to incorporate some real-world pragmatism. A major achievement of the existing 1988 Accord, and one that we would like to see preserved, has been its near-universal worldwide acceptance as the minimum standard for banking stability. So, if this huge advantage is not to be lost, it means that the new Accord has to be adaptable to a wide range of situations, to accommodate not only differing levels of sophistication amongst banks but also differing levels of expertise amongst supervisors. The answer, unsurprisingly, is a menu approach. For credit risk, alongside the greatly more risk sensitive internal ratings based approach, we have the option of a revised standard approach. This is certainly a step forward from the existing approach, but it remains a relatively simple framework. In its implementation, for many banks it may prove very simple indeed, since the large bulk of their loans are likely to have no ratings and so fall into the unrated bucket. The result will be little change on the existing Accord. I think this is inevitable.
The initial shock on the global economy did not differ much from the one that hit in the 1930s. There were many similarities between the Great Depression and the Great Recession. Worth noting are the initial fall in manufacturing output and trade, the collapse of stock prices and credit, and the increase in bond spreads (see Eichengreen and O’Rourke, 2010). These remarkable similarities in the first months of the crisis were alarming. The questioning of the profession was also worrisome. However, the subsequent evolution of the global economy was quite different from that of the Great Depression, and it was certainly the result of good macroeconomic management. There was a failure in crisis prevention, but the policy response has been good so far. More remarkable has been the response of emerging market economies. In particular, Latin America, a region that historically magnified the global cycle, this time will perform better than the world economy’s average. The world has still many macroeconomic problems to solve before we can declare victory. Indeed the same policies that averted a collapse require careful review to avoid planting the seeds for the next crisis. 3  On this issue, Rancière et al. (2008) find that “countries that have experienced occasional financial crises have on average grown faster than countries with stable financial systems”. 4  BIS Review 84/2010  First, there is a need to think seriously about moral hazard. It is true that during the crisis this was a second order problem.