The minimum standards were developed to help ensure that global competition in banking markets will be driven by each bank’s strengths, rather than by differences in each country’s rules. Moreover, Pillars Two and Three were largely created to promote a more level playing field for banks. For example, incorporating supervisory review – or Pillar Two – into the international guidelines represents a seminal achievement for all of us. By developing guidelines for supervisors’ evaluation of a bank’s internal capital allocation process, the Committee believes that supervisors and banks will engage in more focused, more consistent, and less burdensome discussions of the risks that banks face and the responses they adopt. National laws and regulations provide different avenues through which supervisors may conduct such reviews, and consequently Pillar 2 affords each jurisdiction the flexibility to accommodate those differences. 4  BIS Review 46/2003  To advocate more consistent standards, the Committee created the Accord Implementation Group, or “AIG,” precisely to share experiences and encourage shared approaches. This group, which is chaired by Nick Le Pan, the Canadian Superintendent of Financial Institutions, has already been long at work comparing notes on practical matters. We expect these discussions to help supervisors apply the New Accord more consistently at home, thereby providing a more level playing field across countries as well.
But, we have still not been able to truly cooperate in this field of reserve management, and it is perhaps time for us to take the preliminary steps to move towards such practices in the foreseeable future. It may be controversial. It may pose some new challenges. But, explore, we must. So, I hope you would also start thinking about this new philosophy as well. 2. My dear friends, achieving higher returns, given the current financial turmoil and other factors associated with it, is a challenge faced by many central banks today. The manner in which central banks respond to this challenging task of reserve management has also, had to change rapidly to meet with these new conditions. In fact, it is seen now that central banks have started to gently move away from traditional asset classes like the government Treasury Bills to more sophisticated asset classes. With this development, we now witness changes in the asset portfolios of central banks in the current context, since Central Banks have moved into more dynamic instruments to achieve its return objective within certain acceptable risk parameters. Consequently, gold and Treasury bill holdings traditionally held by central banks are now being challenged by investments like derivative products, securities lending and securitised products, and this trend opens out a new canvas for the reserve managers of central banks. 3. The experience of the financial market turmoil has led to fresh new challenges as well, which are quite formidable.