On the contrary, it is well understood that bank managers have the most complete understanding of the risks their institutions face, and it is they and the bank’s directors who have primary responsibility for overseeing those risks. The task for supervisors in this framework is to evaluate how well banks are assessing their capital needs relative to their risks, including whether banks are appropriately addressing the relationship between different types of risks. Most importantly, in proposing this second pillar the Basel Committee intends to foster a more active dialogue between banks and their supervisors. The third element in the proposed new capital adequacy framework is market discipline. As I discussed earlier, more extensive disclosure and a greater dependence on market discipline complements improvements in bank-level management, official supervision and minimum capital standards. Some areas that we at the Federal Reserve believe are good candidates for greater disclosure would include components of regulatory capital, risk concentrations and transactions involving recourse, such as securitizations. To the extent that banks develop disciplined internal approaches to evaluating capital adequacy, and greater disclosure enhances market discipline, supervisors will be able to place greater reliance on all three pillars and reduce regulatory inconsistencies. The common interest is to keep the Basel standards as a floor sufficient to ensure financial soundness, but above which banks themselves will choose to operate. Conclusion In conclusion, we clearly have an ambitious agenda for perfecting and refining the supervisory framework for the twenty-first century.
Mr McDonough discusses sound banking systems: a new growth imperative  Speech by Mr William J McDonough, President of the Federal Reserve Bank of New York, before The Monetary Authority of Singapore, Singapore, on 24 March 2000. *  *  *  I am delighted to be with you today. It’s a special pleasure to be among so many old friends and colleagues. It’s also a great pleasure to be in Singapore under such happy and promising circumstances. Just two years ago, financial and economic conditions throughout Asia were rather grim and the outlook was uncertain. But since then, to the great credit of the people of Asia, significant progress has been achieved. In Thailand, Indonesia, Malaysia and especially Korea, meaningful headway has been made toward recapitalizing the banking systems, ridding banks’ balance sheets of problem assets, and improving supervisory and regulatory frameworks. And that hard-earned progress on the banking front is already bearing fruit. The economic contraction that devastated so many in the region has generally been halted and even, in some countries, impressively reversed. Equity markets have rebounded impressively, and yields on government securities have been cut by nearly two-thirds as foreign capital has begun to return. Without question, this is truly a remarkable turnaround. It must also be acknowledged that the economies of Asia are not out of the woods just yet. Important and even difficult work still lies ahead.