This intermediation process needs to be performed in an environment of financial stability. Therein lies the importance of confidence and soundness of the financial system. Banking business inherently involves risks and these risks need to be rigorously managed. In an environment of heightened uncertainty and increased volatility, this needs to be reinforced with the development of a more robust and resilient banking system. Hence the importance of prudential regulations to ensure the soundness and stability of the financial system. An important component of prudential regulation is having a sound capital framework that measures risks accurately and allocates adequate capital to the risks. The current capital accord issued in 1988 has served as the international benchmark for capital adequacy assessment for banking institutions. While it has achieved the desired results in terms of developing more well-capitalized banking institutions globally, the rapid developments in the financial markets over the years, including the growth of off-balance sheet financing such as asset securitisation have rendered the broad-brush measurement of the existing accord to be less effective. Risk and risk management - the need for new accord New institutional structures and evolving market practices have reduced the effectiveness of the existing accord. While the basic categorization of risks have not changed significantly, the ways in which risks present themselves have changed quite substantially. With the introduction of new products and more complex financial transactions enabled by technological innovations, risks can be disaggregated and rebundled in new ways.
Christian Noyer: Bank of France – Bank of Japan: converging views Opening speech by Mr Christian Noyer, Governor of the Bank of France, at a joint symposium of the Bank of France and the Bank of Japan, Paris, 8 January 2008. *  *  *  Mr Ambassador, Governors, Chairpersons, Professors, ladies and gentlemen, dear friends, I am delighted to welcome you today to the Banque de France together with the Governor of the Bank of Japan, Toshihiko Fukui. Yokosso Ilashaïmase ! Some of you have come as neighbours, and others have made the trip from Tokyo to attend this symposium, for which I would like to thank you wholeheartedly. And, as 2008 has just begun, I would like to wish you a very happy New Year: the year of the rat in the Japanese calendar, “Akemashite omedeto gozaïmasu nesumi doshi”. I recently read the following prediction concerning this year: “It will be particularly favourable for all forms of investments and savings (we all know that rodents hoard their food)”. The prediction went on to say (every word is true) “The influence of the rat curbs inflation”. As a euro area central banker, I welcome this omen. But coming back to what gathers us here today, 2008 is the year of friendship between France and Japan, celebrating the 150th anniversary of Franco-Japanese diplomatic and economic relations.