In this endeavour, an appropriate balance will be maintained between our priority to substantially strengthen the capacity of the banking system to absorb future shocks arising from financial and economic stresses, and avoiding material competitive distortions that can arise from uncoordinated moves between countries on specific elements of the framework. Through the continued rigor of our stress testing requirements, the expectations are for banks and insurers to operate at levels that remain sound even under stressed conditions. This will be further reinforced with the implementation of Pillar 2 from 2011, which will accord greater focus on the individual banks’ own internal capital adequacy assessment processes to determine the adequacy of capital against their specific risk profiles and capital management strategies. With respect to liquidity, our existing Liquidity Framework will be enhanced in 2011 to bring it in line with the Basel III standard, while making appropriate customisations to take into account the specific structural characteristics of our market. We will also issue additional guidance to promote more stable funding structures that will increase the robustness of bank liquidity positions, particularly during periods of stress in funding markets. These quantitative liquidity standards will be further complemented by principles for sound and effective management of liquidity risk. While major agreement has been reached on most areas concerning capital and liquidity, proposals in other areas including the non-risk-based leverage ratio, countercyclical capital buffers and the supervision of systemically important financial institutions continue to be a work in progress at the Basel Committee.
While it is recognized that the global reforms have been designed to address problems not faced in our financial system and are guided by different value and incentive systems, it is still important that we embrace initiatives that will enable us to avoid the same such mistakes. As more of our banks and insurers venture abroad into the regional markets, financial institutions will also be assessed by investors, analysts and market participants against these global standards. Moving forward, after a consultative process with the industry, the following enhancements will be incorporated to the Risk Weighted Capital Adequacy Framework for banking institutions:  4  BIS Review 146/2010    higher capital requirements to support risks in trading activities, securitizations and counterparty credit exposures;    strengthened definitions and criteria for the recognition of Tier 1 and Tier 2 capital; and    higher levels of common equity, Tier 1 and total minimum capital requirements which also provide for capital conservations buffers. The appropriate timing of transition to the new requirements, will be determined in 2011. While the Basel Committee has set a generous timeframe for implementation of the new requirements, we anticipate that given the current position of strength of our banking system and together with other jurisdictions, including those in this region, we are in a position to be on a faster track to adopt the new requirements.