But for those that fall within the mandate of the Basel Committee, we believe that the ideas produced by Basel Committee thinking – translated into the Basel III reforms, and subsequently endorsed by the G20 and Financial Stability Board – provide a substantial foundation on which the banking system can be rebuilt to be much more robust and resilient in the future. Basel III capital requirements are probably well known to all of you, so I do not propose to say much more about them today. What I would instead like to focus on is our thinking in relation to liquidity, and particularly the LCR. As an idea, it is simple: a bank should have enough liquid assets to survive a 30-day period of stress. And perhaps to some, it might seem underwhelming. If you tell your spouse that we have implemented a reform that requires banks to have enough cash to last 30 days, more than likely you will get the same response I did when I tried to explain it to my wife: “what do you mean, only 30 days?” Yet this idea has been one of the most fundamental reforms of the crisis. It also is a classic example of an idea that had been toyed with for a long time, but took a crisis to bring to fruition. A study of Basel Committee history shows liquidity to have been on the agenda almost for the entire existence of the Committee, but we have never come close to an international standard.
Assessments under the RCAP are currently underway for Singapore and Switzerland. Later this year will follow China, Australia, Brazil and Canada. As with all of the RCAP work, transparency is critical to success – all of these reports will, of course, be published in full when complete. It is important to note that, in undertaking this work, the Basel Committee has no enforcement power, so it would be meaningless to think we can force jurisdictions to change their local regulations if we find gaps. Our goal is therefore framed more positively: to deepen the implementation process and to help jurisdictions identify the gaps and address them. Ideally, the assessments provide a roadmap by which identified gaps can be closed. They also provide stakeholders and markets with a much higher degree of transparency about the extent of any local divergence from agreed international standards, and the importance of these. In this way, we believe we will establish the appropriate incentives for local rulemakers to apply the global standards, and for markets and others to apply appropriate pressure where banks may be subject to weaker-then-expected prudential requirements. More consistent domestic regulations will be an improvement. But beyond looking at how local regulators have transposed Basel agreements into domestic regulations, the Committee has also begun examining whether the framework(s) are producing consistent outcomes. Ultimately, what counts is that the capital ratio calculated and reported by individual banks provides a meaningful and comparable representation of their capital strength.