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BIS Chairman Nout Wellink presented the Basel Committee's strategy to address the fundamental weaknesses revealed by the financial market crisis that relate to the regulation, supervision and risk management of internationally-active banks.
“The primary objective of the Committee's strategy is to strengthen capital buffers and help contain leverage in the system arising from both on- and off-balance sheet activities”, Mr Wellink said. “It will also promote stronger risk management and governance practices and limit risk concentrations within and across banking institutions, and strengthen market transparency. Ultimately, our goal is to help ensure that the banking sector serves its traditional role as a shock absorber to the financial system, rather than an amplifier of risk between the financial sector and the real economy."
The key issues of the Committee are:
Ø strengthening the risk capture of the Basel II framework (in particular for trading book and off-balance sheet exposures);
Ø enhancing the quality of Tier 1 capital;
Ø building additional shock absorbers into the capital framework that can be drawn upon during periods of stress;
Ø evaluating the need to supplement risk-based measures with simple gross measures of exposure in both prudential and risk management frameworks;
Ø strengthening supervisory frameworks to assess the soundness of funding liquidity at cross-border banks;
Ø leveraging Basel II to strengthen risk management and governance practices at banks;
Ø strengthening counterparty credit risk capital, risk management and disclosure at banks; and
Ø promoting globally co-ordinated supervisory follow-up exercises to ensure implementation of supervisory and industry sound principles.
The Basel Committee expects to issue proposals on a number of these topics for public consultation in early 2009, focusing on the April 2008 recommendations of the Financial Stability Forum. Other topics will be addressed over the course of 2009.