This gets to the complexity versus disclosure debate in the search for a better way forward in that arena; and should improve the ability of accounts to reflect changes in the underlying business. All of this is really to say that pillar three needs to be seen in a broader context. In today's 'derivatised' world, the utilisation of derivatives and complex forms of contract, often with modelled valuation bases, is just about omnipresent. This is not a value judgment - it is a fact. I think we have to accept that any set of accounts, however drawn up, is likely to be considerably deficient, taken just as numbers, in terms of outlining the economic realities of risks within the balance sheet. And disclosure itself is arguably inadequate at present in relation to both off- as well as on-balance sheet activity. However much it may be a matter of regret, and despite best intentions, the transparency of today's accounts has become less and the opacity greater than was the case in former days, thereby giving a less than complete or reliable view of overall risks. This is not just a question of SPVs; what is and what is not on the balance sheet; nor even whether historic or fair value accounting techniques are used. The fact that accounting standards setters are only too well aware of this, and grappling with the considerable issues involved, is very much to be applauded. For this is a fundamentally difficult area.
I should say that the costs of implementing Basel II will not fall on banks alone - nor will the challenges. In most jurisdictions, regulators too will both face challenges and need to incur costs in expanding staff numbers, in training and in implementing systems. This will be important for them to handle the new approach. After all, it calls for a significantly greater level of expertise on the part of line supervisors than has the existing Basel Accord. And whilst the UK, and a few other jurisdictions, do have that expertise, we need to remember that we are looking at a global market place. And at a global level I detect a deficit of expertise which will require to be remedied. Pillar three and disclosure I would also like to say a few words on pillar three. Pillar three can, it seems to me, play two roles. First, of course, it can play a role within the Basel II context itself, by mitigating the need for complexity in pillar one. Disclosure about the way organisations actually manage their risks can indeed help a better understanding of their risk profile, compared to a study of complex numbers on their own. For example, understanding how a firm conducts its stress testing, or how valuations might be sensitive to different assumptions, could be of real value. But, second, such disclosure could be of value in the general accounting context itself.