Some in the private sector complain that there might be a lack of regulatory level playing field. But my own experience leads me to believe that supervisors themselves are just as aware of this. So I would encourage those in the private sector to work with supervisors in different countries to ensure the delivery of fair supervision across frontiers. If we can achieve confidence in that, then the intention of pillar two acting as a mitigant against greater prescription will I believe be realised in practice. That said, I recognise that in some jurisdictions the thinking behind pillar two represents a new departure in the philosophy, and perhaps legal basis, behind banking supervision. And in that way it represents a considerable challenge. BIS Review 14/2003  1  Maintaining the link with market practice Basel II has been a long process. But it is not an end in itself. Indeed if it were we would never achieve it. The markets, and the risks they give rise to, are not static. It is instructive, for instance, to reflect on just how much risk management theory and practice has advanced in the five years since negotiations on the Accord began. I have long felt that you need some mechanism to ensure that prudential standards remain appropriate as the state of the art moves on. That does not mean that the standards should be in a state of continuous flux. There is a good case for stability in the initial period while the Accord is being adopted.
Having worked on both sides of this argument, I am more than aware of the anxieties - and indeed disagreements - which have arisen during the long debate that has got us to where we are. But the direction seems clear even though storm clouds may appear from time to time. But what I would like to do today is to look beyond today's situation a little, and to share with you a few reflections both on the Basel process itself, and, looking forward, on some related issues. Importance of all three pillars in the new Accord Firstly a couple of observations on the Accord itself. One is to remind ourselves that the Accord has three pillars - not just one. Pillar one has had most of the attention hitherto. The challenge of producing greater risk sensitivity has been considerable. Technical experts from all areas of the business, model builders, and others, have been involved. This has generated a tendency to seek greater and greater granularity and has resulted, perhaps inevitably, in considerable complexity. Striking a balance between risk sensitivity and detail has not been easy. But faced with the detail of pillar one, the challenge going forward is not to lose sight of the other two pillars, and the role they can play in mitigating complexity. Pillar two Pillar two, it should be remembered, was designed to alleviate the need for excessive detail. Supervisory oversight was felt to be a better way to address the many complexities than detailed rules.