Moreover, this choice should preserve and strengthen the stability of the Algerian banking system, which has been achieved in particular by strong economic and financial performance since 2001 and the enhanced supervision capacities. The strengthening of these capacities over the past years constitutes a major asset for the Bank of Algeria and should make it possible not only to successfully ensure that Algerian banking regulation and supervision complies with international standards (such as the Basel Committee’s Core Principles for Effective Banking Supervision), but also to efficiently prepare the implementation of Basel II with a good take up of the Accord by Algerian banks. As Governor of the Banque de France and Chairman of the Commission bancaire, I am aware of the extent to which the preparation of the implementation of Basel II requires efforts and resources on the part of both institutions and supervisors. Allow me to illustrate this by briefly presenting initiatives carried out by the Commission bancaire and its General Secretariat for effectively implementing Basel II in France. By 31 December 2007, over 30 on-site inspections will have been conducted in 20 institutions, involving at times up to 100 inspectors at a time. These on-site inspections examined IRB systems for credit risk and advanced operational risk measurement approaches.
While it is too early to draw definitive conclusions from the current episode, it is nevertheless apparent that progress needs to be made by credit institutions, for example in the management of credit risk, market risk, liquidity risk, the risks associated with certain activities such as asset management and risks linked to the valuation methods used for some financial instruments. Regarding credit risk: –  It is important to check that banks’ internal rating systems, along with the estimation of the different risk parameters they use, are updated in order to reflect the increase in default risk and losses in the wake of the current turmoil. It is indeed vital that these systems do not lead to risk being underestimated. This update appears all the more necessary at the present time given that in the case of real estate loan portfolios, estimates of risk parameters have perhaps not been sufficiently rigorously tailored by all banks to the specific features of some risky forms of credit such as US subprime mortgages. The same thing may have happened in other countries.