As a first key step in developing these approaches, the Basel Committee gathered information about banks’ internal ratings systems. Our findings indicate that there is presently no single standard for the design and operation of such a system. Thus, I see the importance of establishing appropriate guidelines for the use of internal ratings systems. These guidelines should ensure that internal ratings appropriately reflect the credit risk in each category of exposure. Additionally, it is important that we develop robust disclosure guidelines for internal ratings information to ensure that capital requirements are comparable across banks and countries. Standardized approach A revised standardized approach is still very important to us at the Basel Committee, as some banks may not have the internal resources to implement an internal ratings-based approach, and some supervisors have indicated that implementation of this approach would create resource strains for them. Further, we want to ensure that those banks that look to the Accord as the common standard many of which are located in emerging market countries - can subscribe to the revised framework. In order to improve the risk sensitivity of the standardized approach without becoming overly complex, the Committee has proposed the use of external credit assessments, such as credit ratings. Many comments noted drawbacks to this approach, but those that have seriously considered the trade-off between simplicity and risk sensitivity generally have agreed with the Committee’s decision to make use of external credit assessments.
Will it come about through a sharp correction in the dollar and, if so, what will the consequences be for the world economy? The majority of forecasters agree that the large deficits in the US are not sustainable. It’s true that the weakened dollar is expected to be able to lead to a certain stabilisation of the current account, but since the US imports around 1.5 times more than it exports there would have to be a sharp reduction in imports or an even steeper rise in exports for the deficit to be able to narrow. At the same time, demand in the US has to a great extent been the engine for the world economy in recent years. Expansionary economic policy has contributed to this and also resulted in a very large saving deficit. The inflow of capital to the US has stemmed, among other things, from Asian central banks’ purchases of US government securities. China has recently accounted for about one-third of the US external borrowing requirement. In that way, both China and Japan have built up substantial dollar reserves. The logic behind this loss-making activity (if the dollar continues to fall in value) is that it enables Japan and China to maintain low values for their own currencies, thus facilitating continued exports to the US and other countries. For China the substantial exports translate into jobs and incomes in an economy where a very high percentage of the population still live in the conditions of a developing country.