Emerging markets in particular will need to ensure that supervisory interpretations of the framework are contextualised to the local conditions, and the preconditions for its effective implementation are adequately developed to avoid the potential market distortions. At the institutional level, Basel II provides a unique opportunity for banks to integrate risk considerations with their business strategies. Indeed, several leading financial institutions have successfully taken Basel II beyond the narrow and mechanistic risk applications to a more strategic implementation of the framework across the organisation. Such institutions have leveraged on the upgraded risk infrastructures that have been established for Basel II to create competitive advantages through the application of new business and management tools. This enables the risk function to have a central role in forming strategic moves into new markets or products. In the process, this will ensure that the strategies are aligned with the bank's risk appetite and policies. The benefits of Basel II cannot be achieved with just a strict regulatory compliance approach. While Basel II serves as a powerful catalyst to reposition the role of, and the attention to, risk management in banking institutions, significant efforts need to be directed at strengthening the financial structure, corporate governance, risk management and data capabilities within the banking institutions. The approach adopted by Bank Negara Malaysia has been for these efforts to complement and reinforce the positive outcomes of Basel II. These are important preconditions for, and not automatic outcomes from the adoption of Basel II.
Sustaining recent progress is a key priority for the Bank of England as I know it is for the SPE. People often ask me what my professional responsibilities in the Bank are. The most formal description is contained in the Bank’s Senior Managers and Certification Regime return. The SM&CR is a critical element of the post-crisis regime for accountability in the whole financial sector, ensuring there is a clear public line of sight running from the senior leadership through to every key function carried out by a financial institution. 2  The SM&CR is an essential part of the soft infrastructure underpinning improved conduct and therefore fairer and more effective financial markets in the UK and globally. 3  The SM&CR entry for me is long, and so I will just flag a few of my key responsibilities. What these boil down to is that among the Governors I have operational responsibility for the Bank of England’s balance sheet. It is the Bank’s balance sheet that is going to be the focus of my talk today. The balance sheet is integral to the operations undertaken in the areas I oversee, Markets and Banking, Payments and Financial Resilience. And it is central to the Bank’s mission for monetary and financial stability: the balance sheet is the hard infrastructure that supports much of the Bank’s policy activity. For most of the time it may not be as newsworthy as some of the tools it supports, like Bank Rate, QE or “lender of last resort”.