The members of the Committee shared this concern when we decided to undertake work on the prudential treatment of certain trading-related exposures under Basel II. We do not intend to overhaul the capital rules for trading book exposures, but rather seek to address narrowly a handful of concerns that relate either to potential inconsistencies that could arise with the new treatment for banking book assets or that relate to a limited number of issues that have arisen since the adoption of the Market Risk Amendment. The implementation of Basel II With that, I would like to turn now to my third topic and report on our efforts to smooth the path from the existing capital standards to the new Basel II framework. On the regulatory side, supervisors are working with national authorities to transform the framework into enforceable rules and regulations, within the context of each jurisdiction’s process. This work is well underway in all of the Basel Committee member jurisdictions, but also in many other countries as well. On the supervisory side, let me mention three areas in particular where we are devoting resources to promote a seamless transition to the new framework. Calibration First, we are verifying that Basel II has been calibrated appropriately. The Committee has long stated its intention to conduct work to re-confirm that the new framework meets our objective to broadly maintain the aggregate level of capital requirements, while keeping incentives to adopt the more advanced approaches that are offered.
Some reforms underway represent efforts to ensure that our rules keep pace with the achievements that the industry has already made. On this note, I would argue that Basel II is just as much about aligning supervisory practices more closely with the industry’s latest advances as it is about promoting improvements in the management of risk within the industry itself. But I sympathise with the sense that the wide range of standards that are evolving in parallel represents a drain on the limited resources that firms have to keep pace with those changes. I agree that we must find a way to balance the dangers we are trying to ward off against the time and resources it takes to adapt to new circumstances and new rules. And I want to work with you to make sure that the labours you undertake are not merely exercises in compliance with new rules, but rather will represent honest efforts to strengthen your practices and your long-term prospects for growth and innovation. From my perspective as chairman of the Basel Committee, I can say that the Committee’s main focus in the near future will be on completing the current work and on implementing Basel II in a sound, consistent, and effective manner. This will allow us all a period to digest the framework we have designed. At the same time, we have always said that Basel II should be an evolutionary approach. This does not mean a moving target.