BIS central bankers’ speeches  1  What are we doing? There is still a great deal of work being done to finish the Basel III framework. The capital standards are now largely settled, with the exception of some technical work on issues like exposures to central counterparties (CCPs). As I noted earlier, the LCR has also been finalised – albeit again with some final technical details to be resolved. But there are other parts of the Basel framework which we are currently working to flesh out and make operational. Major projects currently under way include: •  finalising the specification of the leverage ratio, and associated disclosure requirements;  •  reviewing the Net Stable Funding Ratio (NSFR), which addresses the longer-term structure of bank debt and complements the short-term focus of the LCR;  •  completing the review of the trading book capital requirements. This entails an evaluation of the design of the market risk regulatory regime as well as weaknesses in risk measurement under the framework’s internal models-based and standardised approaches;  •  enhancing the treatment of securitisations to make capital requirements more prudent and risk-sensitive. We are also reviewing ways to reduce mechanistic reliance on external credit ratings and to reduce current cliff effects in capital requirements;  •  strengthening standards to limit excessive and opaque risk-taking through over-thecounter (OTC) derivatives and to reduce systemic risk posed by OTC derivatives transactions, markets and practices.
Már Guðmundsson: Sovereign risk – a world without risk-free assets? Remarks by Mr Már Guðmundsson, Governor of the Central Bank of Iceland, in a policy panel at a seminar on “Sovereign risk – a world without risk-free assets?”, Bank for International Settlements, Basel, 8–9 January 2013. *  *  *  I would like to cover three issues in my remarks. First, I will reflect a bit on the title of the seminar and some of the more specific questions directed at this panel. Second, I will discuss the nexus between sovereign risk and banking fragility, using Iceland as a case study – after all, the Icelandic experience is probably the reason that I am taking part in this interesting seminar in the first place. Third, and again with reference to the Icelandic case, I will reflect on the connection between sovereign ratings of advanced countries and actual sovereign defaults. The title of this seminar is Sovereign risk: a world without risk-free assets? As has been repeatedly pointed out, there is, strictly speaking, no such thing. The default probabilities of even the strongest sovereigns are not zero, and they increase as the horizon gets longer. Furthermore, the real income stream of nominal government bonds is uncertain.