But risk managers know that having adequate levels of capital does not ensure success - or even longterm survival. In calm seas, everyone is a pilot. Only rough waters prove the skill of a ship’s crew. Supervisors and risk managers know that a bank’s management and controls make up its first line of defence. The New Basel Accord seeks to capture the relationship between capital adequacy and risk management, a relationship that is quite apparent in its approach to operational risk. I’d like to take this opportunity to discuss the latest news on the New Accord and some of my thoughts on the framework for operational risk. I’ll begin with the Committee’s announcement from two weeks ago about plans for finishing the New Accord. I’ll then share some thoughts on the treatment of operational risk and the Committee’s motivation for adopting an explicit charge for it. Given the interest that this proposal attracted, I’ll address three important themes raised in public comments that the Committee is currently considering. During that discussion, I’ll offer some thoughts on what lies ahead, not just for bankers, but also for supervisors in conducting and coordinating supervision under the New Basel Accord. BIS Review 45/2003  1  Recent developments: the October press release First, to the most current news. By now you’ve no doubt read that the Basel Committee agreed two weeks ago on a plan to address the final issues raised in public consultations over the summer and to complete the new rules.
On this front, a risk manager and a bank supervisor share similar interests. A risk manager seeks the best risk measures and management techniques to protect a bank against losses, to hone its competitiveness, and to enhance its profitability and long-term growth. Supervisors, for their part, advocate the use of sound risk management practices to ensure the adequate capitalisation and prudent management of all banks. This, in turn, strengthens the ability of financial sector to withstand periods of distress, to serve as an intermediary of credit through good times and bad, and to contribute to more sustainable growth in the economy. The Basel Committee’s landmark revision of the international bank capital standard represents one of the most important global efforts to encourage the responsible pursuit of risk and rewards and, hence, to promote greater financial stability. This represents the outgrowth of trends in many countries to build incentives into the regulatory framework that encourage banks to identify and understand the risks they face today, to consider what risks may arise tomorrow, and to respond actively and appropriately to both. You’ve been discussing this topic here in Paris for two days now, but all of us have been thinking long and hard about the New Basel Accord for many years. That should come as no surprise, as capital requirements are the foundation of the regulatory framework. Even more importantly, capital is a key ingredient to the health of the banking sector.