The adoption of IRB approach would entail significant changes to their existing systems, the collection of extensive data as well as the fulfillment of many other qualitative and quantitative requirements. Such banks are advised to start building up the necessary data systems now itself in order to be able to qualify for the advanced approaches and to plan the application of the ratings for their credit management. The IRB approach will permit the banks to use their own estimates for the measurement of credit risk with regard to certain parameters. CBSL will stipulate the minimum qualifying criteria regarding the comprehensiveness and integrity of the rating systems, including the ability for those systems to produce reasonably accurate and consistent estimates of risk. This will be done in consultation with the industry and by announcing a timeframe for permitting the Foundation IRB approach and the submission of applications in 2007. Irrespective of whether the advanced approaches are used or not, the Central Bank encourages all banks to study carefully the more advanced risk management concepts and practices embodied in Basel II and consider adopting those relevant to their risk management purposes, even though they may not use them for capital allocation as such.
We will be monitoring closely the impact of tighter credit conditions on demand and output over the  4  BIS Review 114/2007  coming months. Even though inflation is close to the target and pay pressures are muted, we will continue to look ahead and monitor the risks to inflation that we identified in August: the signs from surveys and financial markets that people expect inflation to pick up; the strength of company pricing intentions, and the recent increases in world commodity prices. Keeping inflation close to the 2% target is the biggest contribution the Bank of England can make to economic stability generally. Changes in Bank Rate could not prevent the profound change in the world economy that pushed down yields on low-risk financial assets and led investors to take on more risk. They cannot now prevent the re-pricing of that risk. And just as Bank Rate was not set to insulate the manufacturing sector from the trade deficit that resulted from the earlier change in the world economy, it will not be set now to insulate the banking system from the re-pricing of risk. But you can be sure that we will do whatever is necessary to keep inflation close to the 2% target. Tonight is the first time that the Court of the Bank of England, and the Monetary Policy Committee, have gathered in Northern Ireland. So much has changed in the Province since the troubles started and I first came to Belfast to speak at Queen’s University.