By promoting a more consistent approach to supervisory review, we intend to strengthen the quality of supervision across countries. We recognise as well the special function the Committee can offer in strengthening the ability of host supervisors – particularly those in emerging market economies – to regulate the local operations of foreign banks. Harmonisation of accounting standards and the New Basel Accord  Supervisory review helps to create very direct incentives for banks to evaluate and manage their risks carefully. Transparency can supplement that incentive by leveraging the power of financial markets to encourage prudent risk-taking, and I would like now to address the third pillar of the New Accord, namely market discipline. Even just over the past few months, the popular press has reported on several examples of corporations that failed to disclose adequately the kinds of activities in which they were involved and the degree to which they bore risk. Both inside and outside the banking industry, the renewed focus on sound corporate governance practices has highlighted the importance of appropriate disclosure to the market – and the dangers that ensue when companies fail to disclose their risks adequately. These failures in disclosure have added fuel to the drive to harmonise accounting and disclosure practices worldwide. With reference to the New Accord, many respondents quite correctly noted the need to align the supervisory framework more closely with the converging accounting practices worldwide.
We have received similar concerns about conservatism in the securitisation proposals and in the treatment of “double default” risk, which is the risk that both a borrower and a guarantor would default on the same obligation. Other questions have been raised on the incentive structure and on the recognition of insurance within the operational risk proposals. It is perhaps natural that the majority of comments address the minimum capital requirements, or pillar 1. This section of the New Accord defines the capital charges in monetary terms for banks’ exposures and activities. But one should not forget that the New Accord is premised on three pillars, not just one. So I would like now to turn to the other two pillars, beginning with the importance – and benefits – of the proposals for the supervisory review of capital and home/host issues. Afterwards, I would like to spend a moment on another topic which has been raised in the comments, namely the New Accord and harmonisation of accounting standards. Finally, I will conclude my presentation with some remarks about the current status of our discussions and our future work. Supervisory review & home/host issues  As you know, under the New Accord the Basel Committee will recognise formally the role that supervisors play in ensuring that banks manage their risks and their capital needs appropriately. In the past, supervisors in each jurisdiction found their own ways to evaluate capital.