Future Work: Full Credit Risk Modelling The Committee will spend the next few months considering these and other themes carefully and finding ways to balance the complexity of the New Accord against the need for appropriate sensitivity to risk; to ensure that the assumptions supporting the rules are appropriately conservative, but not excessively so; and to apply the rules consistently to protect and promote competition in the global banking market. But when the ink dries on the New Accord, rest assured that the Basel Committee will not be adjourning. Just from the comment letters we received, we can already identify a wide range of issues ahead to continue to find new ways to advance risk management, to promote greater transparency, and to strengthen the stability of the financial sector. I’d like to conclude by mentioning just two of the potential items on our agenda for future work once the New Accord is implemented. The first would be to consider the benefits of full credit risk models in the calculation of minimal capital requirements. In theory, a bank’s capital requirements would then reflect to the greatest degree the economic benefits of diversification in its balance sheet. In fact, the Committee did at one point evaluate whether advanced banks should be permitted to estimate the degree to which their assets might behave similarly or default together in the New Basel Accord. As you know, we decided that we are not quite there yet.
There is still much to be done: I’ll discuss as examples our efforts to reduce the complexity of the rules; to ensure that they are sufficiently risk-sensitive without being overly conservative; and to maintain a level playing field. Finally, I’ll conclude with thoughts on some longer-term and future efforts that the Committee may undertake to continue to align the system of supervision with the best practices of leading institutions and practitioners worldwide. A Look Back As we resolve the final questions and complete the text of the New Accord, it’s important to remember why all of us put our best into its success. The existing Accord was already considered a milestone achievement in banking, as it offered the first internationally accepted “yardstick” for capital adequacy and a simple measure of risk. It had received praise for reversing a downward trend in bank capital levels and for serving as a benchmark measure of a bank’s financial health around the world. But the 1988 Accord was a blunt instrument that quickly fell behind the times. Innovations in technology, in banking products, and in risk management techniques changed the way that leading banks measure and manage their risks. By the mid-1990’s, bankers and supervisors agreed that the  BIS Review 46/2003  1  original Accord no longer provided a meaningful measure of risk for the largest and most sophisticated organisations.