This evolution in the Committee’s thinking about capital adequacy follows from much of our recent work on risk management and the surveys we have conducted on banks’ disclosure practices. It is also consistent with the broader notion of supervision I’ve discussed today. We encourage comments on the Committee’s proposals from both supervisors and industry participants through 31 March 2000 - which is next week - and plan to publish, hopefully early next year, a comprehensive set of proposals that will be responsive to the comments and input we have received. Let me highlight briefly each of the three pillars and provide some perspective on the key challenges that the Committee faces in relation to each. The first pillar is minimum capital requirements. To address the shortcomings in the 1988 Accord, the Basel Committee has proposed two primary approaches: •  an enhanced standardized approach that ties risk weightings to external credit assessments such as credit ratings; and  •  an internal ratings-based approach that would begin by mapping internal risk ratings into standardized risk weightings, but might eventually evolve into something closer to the full use of credit risk models. Each approach treats the trade-off between simplicity and accuracy somewhat differently and thus one or the other is likely to be relevant to banks with different levels of sophistication. Most importantly, both proposed approaches attempt to introduce greater risk sensitivity into the minimum capital standards to address the unfortunate incentive problems that have evolved from the 1988 Accord.
These economies show signs of a slowdown that can be traced to decreased exports to Asia but there are also indications that their domestic demand is slackening. In the euro area, however, growth prospects seem to be more favourable. The recovery appears to be firm—to a growing extent as a result of stronger domestic demand—and it looks as though inflation will remain low. The overall picture of international activity is somewhat weaker than the Riksbank forecast in June. International inflationary pressure is low. The extensive economic problems in Japan and the unrest in global stock exchanges are contributing to this. BIS Review 66/1998  -4-  Swedish economy strong Economic growth in Sweden seems to be good, however. As expected, the statistics show an accelerating growth of domestic demand, accompanied by a slowdown in foreign trade. Private consumption is rising strongly and a continuation of this trend is indicated by a number of factors: households’ personal economic expectations are still rising, employment is expanding and disposable income is growing as a result of low inflation and a less restrictive fiscal policy. Uncertainty about share prices could have a contrary effect but the downward movements that have been observed constitute no more than a correction after a relatively strong increase. Since the beginning of 1998 the Stockholm Exchange has risen 20 per cent. The statistics also show strong growth for public consumption as well as gross capital formation. But foreign trade is weakening; export growth is slowing and imports are rising.