This additional year of data collection and analysis will be invaluable to the prudent  BIS Review 29/2004  1  and consistent implementation of the advanced treatments.Let me explain in more detail the supervisory perspective. As you know - and perhaps many of you have been involved - supervisors, bankers, and others have discussed intensively the technical requirements for the most advanced treatments of credit and operational risk over the past few years. This exchange of views has helped us to improve the requirements tremendously. The Committee wishes to have the best information possible to assess how the recent changes will improve risk sensitivity, enhance the role of supervisory judgement, and promote sound disclosures regarding a bank’s measures and processes for controlling risk. The Committee agreed that this could be done by requiring additional impact analysis, perhaps through national field tests in those jurisdictions that plan them. An alternative is to require banks to calculate their requirements under the 1988 rules and the new framework in parallel for two years, rather than just one as originally proposed. Consequently, those banks that will adopt Basel II’s advanced approaches to risk will be permitted to implement the new rules at year-end 2007, or just one year after the standardised and foundation banks. I believe that this decision responds to the views of both national supervisors and the industry that a limited amount of additional time is necessary to prepare consistent approaches to the implementation of the most sophisticated rules.
Third, and this is the trickiest of the three, is when individuals consciously tap on these cognitive biases to their own advantage. The rise of the asset management industry is one example, where asset managers’ herd behaviour may be looked at as perfectly rational. An IMF researcher referred to such situations as “rational bubble-riding”, whereby financial benchmarking and the short-term nature of performance appraisals imposed on asset managers, lead them to consciously ride on bubbles, despite believing that the prices are unjustified by fundamentals. Investors may be incentivised to herd, preferring to succeed or fail together to prevent reputational damage. As John Maynard Keynes famously said, “It is better for reputation to fail conventionally, than to succeed unconventionally”. Whether these cognitive biases are unconsciously wired in us or consciously being tapped on, we ought to recognise the power of perception. Edward de Bono aptly pointed out that “perception is real, even if it is not reality.” In reality, a few of these misperceptions result in tangible consequences that influence the ringgit exchange rate level. Let me cite five instances of misperceptions that have been making its rounds in the market: First, the perception that the ringgit is driven by oil prices. This was derived from fact that Malaysia is one of South East Asia’s net exporters of oil and gas. Petronas is also one of the world’s largest producers of LNG.