We must all be able to pay our bills in a secure manner, preferably also in a simple and speedy manner, i.e. we must know that the  BIS Review 51/2002  1  party to which we are sending money actually receives it. There are many countries in the world where this does not function and this is as much of an obstacle to development as when roads and railways do not function. The banks are the institutions that handle the major part of the payments. It is because they are so important to the financial sector that they are subject to such comprehensive legislation and that they are the companies most closely monitored by Finansinspektionen (the Swedish Financial Supervisory Authority). We may have views on how the banks should set charges, handle their customers and so on, but without them our lives would certainly be more complicated. In this context it is worth noting how much IT in a broad sense has helped the banks to develop and simply means of payment. It is not so long ago that one received a weekly wage in the form of a brown envelope containing banknotes, handed out on a Friday afternoon. Nowadays our wages are paid directly into our bank accounts and we receive notice of this in a bank statement. Nor do we have to go very far to pay our bills; we can sit at our desks and fill out giro forms or - even easier - pay through the computer.
According to rating agency assessments, the big banks’ intrinsic financial soundness improved significantly last year. However, two aspects should be borne in mind when assessing the big banks’ situation: First, their exposure to credit and market risk relative to their capital remains considerable. Although credit quality abroad has improved slightly, it still remains at historically low levels, particularly in the US and Europe. In view of this, lower-than-expected economic growth or a deepening of the debt crisis in Europe could potentially lead to a further deterioration in the creditworthiness of individual countries. Yet, the big banks’ exposures to sovereign debt in  BIS central bankers’ speeches  1  peripheral euro area countries are only moderate. Should the debt problems in the already vulnerable international banking system or in other sovereigns become amplified, however, these banks could face considerable losses. Second, the big banks’ economic capital situation is less comfortable than their very high regulatory capital ratios under Basel II might suggest. A considerable portion of both institutions’ regulatory capital is made up of capital components that proved to be not fully loss-absorbing during the recent crisis. These include, for instance, deferred tax assets, which are only realised if a bank is profitable, or certain hybrid Tier 1 capital instruments, which only become loss-absorbing in the event of bankruptcy. Thus, such capital components will no longer be recognised under Basel III and will be phased out by 2019. The transition period granted to banks gives them sufficient time to meet the new requirements.