Furthermore, most banks will have to meet the next challenge of fine-tuning their risk management and calculating their economic capital in the coming months, pursuant to Pillar 2. In sum, these regulatory, economic and financial factors are prompting banks to change the way they manage their risks, meaning that supervisors must be more flexible and more watchful. To clarify these considerations, I would like briefly to address two issues: 1. The results posted by French banks in 2006 are good, but they are not without vulnerabilities. 2. French banks are currently in the final straight as regards the implementation of the new regulation. As the banking supervisor, our role is to support them during this transitional period and to ensure together that the reforms are carried out properly. French banks’ 2006 results are good, but not without vulnerabilities Like the majority of leading European banks, French credit institutions reported good results for 2006, in line with the previous three years. For the three main banking groups under IFRS, the net banking income grew nearly 19 per cent, more than in 2005. In all, the aggregate net income of the French  BIS Review 75/2007  1  banking system, under French GAAPS, amounts to nearly € billion. This reflects a substantial contribution from foreign subsidiaries and from non-banking business, especially insurance. Moreover, most large French banks made major acquisitions outside their home market in 2006, particularly in regions with strong growth potential.
The missions were initiated after the Commission's General Secretariat had received the findings of the institutions' "internal validations". The purpose was to make sure that institutions were in compliance with the minimum regulatory requirements and, more generally, to check the quality of their information systems and the conditions in which these mechanisms are used and controlled. These inspections revealed that institutions had indeed already made extensive achievements, but also showed that some of them needed to make further progress on Pillar 1 of Basel II, especially with regard to: -  the collection and estimation of the Basel parameters, particularly probabilities of default (PD) and loss given default (LGD): on this point, it is important that banks should steadily upgrade again their historical data so as to cover full business cycles;  -  permanent control and validation of information systems and/or models: implementing thorough benchmarking and back-testing processes is crucial in this context. With regard to Pillar 2, the Commission Bancaire urges banks to make certain that their Internal Capital Adequacy Assessment Processes capture risks which are covered incompletely or not at all by Pillar 1, especially concentration risk, liquidity risk and overall interest rate risk. In the months ahead, priority must be given to developing stress tests that are more comprehensive, i.e. that encompass the various risks (credit, market, etc.) and that aim for exhaustive coverage of risk exposure. Banks must also meet their transparency requirements under Pillar 3 (market discipline), for both the content and the frequency of their disclosures.