The group is made up of senior line supervisors – that is, the people who actually assess banks’ risk profiles – and is led by Nick LePan, the Canadian Superintendent of Financial Institutions. Applying the Basel Accord in the non-G-10 countries Many other countries are similarly preparing for the final leg of our journey, and I applaud your persistence and dedication to this endeavor. At the same time, the Committee recognizes that some countries have only recently adopted the original 1988 Accord and may still be working to ensure a basic level of capital adequacy. I would like to take a moment to address the supervisors of those countries and emphasize that the Basel Committee’s efforts to revise the Accord are focused on the international banks that compete in the global capital markets and that have the greatest potential to create systemic risk. The need for a common approach to capital adequacy regulations for such banks is what drove the Committee to create the 1988 Basel Accord. As I have noted, however, the original Basel Accord has in some sense become the victim of its success, having been adopted in a number of countries and applied to entire banking systems, including banks both large and small. Now, as the Basel Committee is clearly moving away from a single approach to capital, it is important for the Committee and supervisors worldwide to reflect on the choices available to regulate the capital of banks that are neither highly complex nor internationally active.
Even this very summary review illustrates how the changeover to a single currency in Europe will affect conditions for the financial system. The financial markets will become larger, accompanied by increased competitive pressure. Some activities will be modified or disappear entirely. Others will be concentrated to one or a few financial centres. But there will probably also be some new activities. These developments will leave their mark even in countries that do not join the euro area but are adjacent to it. This, too, is a process that has already begun. Banks are being merged into large units. Cost-cutting has come to the fore. Modes of distribution are being overhauled along with a buildup of specialist knowledge. Systems for pricing different products are being changed. Financial transformation not straightforward Today there is a widespread conviction that free trade in goods and services enhances prosperity in the long term. In the same way, most things suggest that in time, free trade in the financial field leads to increased economic growth. But we have also learned that the transformation and development of the financial field are not without problems. In the past decade there have been bank crises in a number of countries as well as several heavy corrections and large fluctuations in money, equity and currency markets around the world. There is nothing inherently new about financial crises. On the country, they have occurred from time to time for many centuries.