In the event  5  BIS Review 126/1999  that a bank’s internal capital adequacy process is lacking, supervisors must have the knowledge and authority to take corrective action. There can be no doubt that implementing the supervisory review of capital will require considerable insight and flexibility on the part of supervisors because they will have to tailor their efforts to the unique risk profiles of particular institutions. At the same time, this approach should allow supervisors to draw on their cross-institutional knowledge as they assess the strengths and weaknesses of a bank’s risk management and capital allocation processes relative to those of its peers. The G10 supervisors recognize the obvious implications that this approach will have for supervisory resources. In order to keep pace with industry innovation, it is clear that we will have to step up our training and consider effective ways for making the most use of our limited resources. The Basel Committee also recognizes the importance of these issues for the non-G10 countries and is working toward providing the training and other types of support needed to allow these countries and their supervisors to move in this direction. The third element in the proposed new capital adequacy framework has to do with market discipline - another critical component of a safer and more stable financial system. More extensive disclosure and greater dependence on market forces complement improvements in risk management, banking supervision, and minimum capital standards.
François Villeroy de Galhau: Five lessons learned for monetary policy from the latest years Remarks by Mr François Villeroy de Galhau, Governor of the Bank of France, at the Paris School of Economics, in discussion with Olivier Blanchard, Paris, 28 June 2023. *** Looking at the last three years, which were rich in unexpected events, I would risk two general lessons, and three more technical ones: 1. The first is that we must remain modest, humble: monetary policy is not omnipotent; it cannot be the only game in town. And we must be nimble, able to react to surprises with agility. 2. That said, monetary policy was efficient in preventing deflation during Covid-while not creating the present inflation. 3. On a more technical note: we certainly should work with less forward guidance. I wouldn't throw it away completely but if we use it again in the future, forward guidance should be (i) state dependent and not calendar based except in the very short term (ii) indicative and not committing. 4. We should keep our inflation target of 2%. It served us well, explaining in part why inflation expectations remain rather well anchored; we shouldn't change it, while keeping in mind that the target is for the medium term. 5. Transmission lags are a key question, and we should dig more into this issue.