What should drive this debate is what a bank itself would want to know before making an investment or credit decision, rather than the concerns that some have about what had formerly been considered secret. The Committee believes it has struck an appropriate balance between meaningful disclosure and protection of proprietary and confidential information. Principles versus Rules A second concern that arose in consultations was the Committee’s decision to adopt specific rules for disclosure, rather than articulate broad principles for transparency. But on this point, many institutions seem caught up in a contradiction. On the one hand, banks suggest that we avoid overly detailed guidance on public reporting that might create burdensome and inflexible rules. On the other, nearly all banks have urged the Committee to provide clarity to ensure the consistent application of the New Accord across jurisdictions. Understandably, some banks are concerned that, in the absence of specific rules, competitors in other countries might be subject to less scrutiny than they are. We recognise that a principles-based approach offers benefits, especially in terms of simplicity and flexibility. But our main intention is to offer markets a clearer picture of a bank’s risk profile, regardless of what jurisdiction that bank may call home. To promote both greater insight into a bank’s true risks and a more level playing field for all banks, we advocate disclosure rules based on principles rather  4  BIS Review 47/2003  than looser principles that might be subject to local interpretation.
I think it is helpful to recall why so many central banks, regulatory agencies, and commercial banks have devoted their best resources to ensuring the success of the New Accord. The existing Accord, as you know, was already considered a milestone in banking regulation. It offered the first internationally accepted “yardstick” for capital adequacy and a simple measure of risk. It had received praise for reversing a downward trend in bank capital levels and for serving as a benchmark measure of a bank’s financial health around the world. But the 1988 Accord was a blunt instrument that quickly fell behind the times. Advances in technology, in banking products, and in risk management changed the way that leading banks measure and manage their risks. By the mid-1990’s, bankers and supervisors agreed that the original Accord no longer offered the largest and most sophisticated organisations a meaningful measure of risk. Under the leadership of William McDonough, former President of the Federal Reserve Bank of New York and my predecessor as chairman of the Basel Committee, the Committee seized the opportunity to achieve more than a simple update of the capital requirements. Bill brought tireless energy to the project and convinced industry leaders, bank supervisors, and central bankers that we should pursue a far greater objective that would incorporate market discipline and also encourage advances in risk management across the industry.