I was tempted by this flight of the imagination to frame my remarks today as the views of that author looking back at the work we are undertaking in 2005. In truth, though, I thought it might depart too much from the usual field of play of central bankers and supervisors. Instead, I’d like to share my views on how the elements of Basel II take us “back to the future,” not unlike the journey of Mr Wong’s author in 2046 from the future to the past. In many ways, Basel II brings us back to a traditional focus on risk, but with the benefit of the most advanced techniques emerging today and into the future. 2. Overview  Specifically, I would like to try to address four key points. Firstly, I would like to consider the current framework for promoting financial stability. I will argue that, despite significant progress, our policy and decision-making framework for financial stability is still incomplete, especially if we draw a comparison with the framework for monetary stability. That said, there are a number of lessons we have learned in recent years that can be useful for the future, and which we have taken into account in designing the new Basel II capital framework. One of the most important of these is the very real and positive contribution that sound risk management practices can make to promoting financial stability.
In summary, even though the framework for financial stability is not as comprehensive as in the case of price stability, significant progress has been made in all of these areas in recent years. There is a fourth lesson that is particularly relevant for this presentation, and it is a lesson that we have learned from periods of bank resilience in times of stress. During the past few years, financial markets have experienced a series of significant shocks. However, the banking system has been able to cope with them successfully. Financial innovation, the existence of deeper financial markets with a great variety and availability of instruments to transfer risks, and the improvement of the capacity of financial institutions to understand and manage their risks are key ingredients in explaining the resilience of the financial system during the period of shocks. And that leads me to my next point: important trends in risk management. 4. Recent trends in risk management  Financial stability is a key precondition for sustained growth. It is crucial, therefore, to find reliable ways of identifying risks to financial stability and, in particular, to banking stability, and to try to manage these risks in the most effective way. Indeed, as experience has repeatedly shown, both inside Asia and elsewhere, having a solid and well-run banking system not only greatly reduces the likelihood of shocks originating inside the banking system but also makes it less likely that shocks arising elsewhere in the economy are amplified through the banking system.