The essence of Basel II is not just the set of rules and formulas to calculate regulatory capital, these are necessary and very important but, in my view, the heart of  6  BIS Review 12/2004  Basel II is the incentives for banks and risk management professionals to advance risk management and the recognition of this progress. Studying and understanding the drivers of credit, market, and operational risk, and probing the relationships between them, will help all of us to get a better sense of the risks and rewards we face today, and how well we are prepared to navigate changes in the landscape of opportunity and challenge tomorrow. Improving our understanding of risk, and strengthening our ability to manage it, offers the promise not just of better administered banks, but more importantly the promise of a more stable financial system one that is better able to serve as a source of credit and sustainable growth for businesses and consumers alike. Thank you again for welcoming me to this conference, and I offer my best wishes for an enjoyable and educational event. BIS Review 12/2004  7
Perhaps, from everyone’s point of view, the going was too good to obstruct; the expansion was too exciting to discourage; the resulting luxuries and wealth were too wonderful to hold back. No wonder therefore, that the financial world continued to happily tootle along this unrealistic path, at break-neck speed. Logically, the accident had to happen, and happen it did, and what an accident that was! A crash landing that was sudden and unbelievably disastrous, not only to the developed world, but to all economies of the globe! Mr. Chairman, the events of the recent past clearly suggest to us that the world’s financial and economic communities have, albeit unintentionally, placed the entire civilized world’s systems and structures at intense risk, and perhaps even endangered the gains of civilization built over several centuries. However, to the eternal credit of the world’s political and economic leaders, we could be relieved that we have been able to face that shock and  BIS Review 106/2009  1  emerge out of it, bruised and battered no doubt, but fortunately, with our systems still reasonably intact. Nevertheless, the major down-turn suffered by the world economy as a result of these shocks is yet to be fully overcome. The tight liquidity crunch that is suffocating our credit markets; the stubborn toxic assets that won’t go away; the suspicions with which banking and financial institutions view each other, are yet continuing, although there are signs of some abatement.