There will be no additional criteria but neither will there be a relaxation of the criteria that proved effective in steering the process of convergence across the founding members of the euro area. Conclusion Let me underline four points which, I trust, are of the essence in the present situation : First, I would like to stress the remarkable credibility of the euro and of the Central Bank that issues this currency, the European Central Bank. Neither the ECB nor the Euro existed six and a half years ago! Today we have a currency which is as stable as were the best national currencies in Europe, and a Central Bank which is as credible as were the most credible Central Banks in Europe and in the world. Our duty is to fully preserve and enhance this exceptional level of credibility and I am, as President, fully committed to this task. Let me in this respect pay homage today to Finn Kydland and to Edward Prescott, who were awarded yesterday the Nobel Prize in Economics. Their seminal work - as regards central banking - on the importance of time consistency, commitment in advance, and full independence and credibility in the delivery of price stability over time has been very important for institutional developments around the world, including the ECB and the Eurosystem, and instrumental in our success. We owe them a particular debt of gratitude. Second, price stability is a necessary condition to obtain sustainable growth and job creation. It is not, alone, a sufficient condition.
This helps identify areas where there is an apparent mismatch - for example where a particular business line is assessed as “high” risk but the risk control is assessed as “weak”. Appropriate follow-up action would then be conducted. I’ve gone into quite a lot of detail on this to make the point that the dialogue between the banks and supervisor in Hong Kong already currently focuses on the full range of risks, even though only a small sub-set of these risks are currently addressed in the capital framework. So, as I said before, Hong Kong is quite well advanced in this area. As time goes on, however, we would expect to see the banks themselves doing more of this analysis and the supervisors less. Indeed, in time we would expect at least the larger banks to have a fairly well-developed process for assessing all the risks inherent in their business, the quality of the management of these risks, and ultimately how much capital they need to hold in respect of these risks. The second area I mentioned in which we can expect to see some developments is the increased used of quantitative techniques, including modelling and stress-testing. Again, this is something that is already happening, but is something to which Basel II will give added impetus. The most obvious area for this, of course, is credit risk, where we can expect to see banks making greater use of credit scoring models, and in particular models to estimate probability of default.