risk management presentation november 26 2012

7/28/2019 Risk Management Presentation November 26 2012

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International Association of Risk and ComplianceProfessionals (IARCP)

1200 G Street NW Suite 800 Washington, DC 20005-6705 USATel: 202-449-9750www.risk-compliance-association.com

Top 10 risk and compliance management related news storiesand world events that (for better or for worse) shaped the

week's agenda, and what is nextDear Member,

Finance is an industry that sells nothing

physical, nothing that you can kick: it sellspromises: promises to pay, promises you areasking your customers to trust.

But the perception in the minds of many members of the publicincluding many of your potential and current clients is that the financialindustry lacks integrity, and this view is not aided by some of the moretorrid storiesfrom this summer headlines about rate-rigging, Mexicandrug lords, and Iranian weapons proliferators will not have helped rebuildtrust in the financial sector collectively.

Who said that?

Tracey McDermott, director of the Enforcement and Financial CrimeDivision (FSA UK)

Read more at Number 7 of our list.

Also:

On August 21, 2012, a whistleblower who had helped the Commissionstop an ongoing multi-million dollar fraud received an award of 30percent -- the maximum percentage payout allowed by law -- of theamount collected in the Commissions enforcement action against theperpetrators of the scheme.

International Association of Risk and Compliance Professionals (IARCP)www.risk-compliance-association.com
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The award recipient in this matter submitted a tip concerning the fraudand then provided documents and other significant information thatallowed the Commissions investigation to move at an accelerated paceand ultimately led to the filing of an emergency action in federal court toprevent the defendants from ensnaring additional victims and furtherdissipating investor funds.

The whistleblowers assistance led to the court ordering more than $1million in sanctions, of which approximately $150,000 had been collectedby the end of the fiscal year.

In accordance with the 30 percent award determination, on August 21,2012, the whistleblower was paid nearly $50,000.

Who said that?We can read it at the Annual Report on the Dodd-Frank Whistleblower

Program, from the staff of the U.S. Securities and Exchange Commission

Read more at Number 1.

Also, at Number 8 you can read a really interesting speech from JaseemAhmed, Secretary General, Islamic Financial Services Board (IFSB).

Although I confess I did not fully understand his first sentence

Assalamualaikum warahmatullahi wabarakatuh and a very goodmorning to all of you,I found the content very interesting.

For example:Islamic finance offers a major opportunity for diversifyingthe investor base, and raising investor interest in Africa.

Also, following the pioneering efforts of countries such as Sudan,Bahrain and Malaysia, governments are integrating Islamic financeinstruments into their public finance and expenditure frameworksthrough sovereign Sukk issuance programmes

Welcome to the Top 10 list.

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U.S. Securities and Exchange Commission

Annual Report on the Dodd-Frank

Whistleblower Program, Fiscal Year 2012

This is a Report of the Staff of the U.S. Securitiesand Exchange Commission. The Commission has expressed no viewregarding the analysis, findings, or conclusions contained herein.

Current focus of the Basel Committee:Raising the bar

Remarks by Mr Stefan Ingves,Governor ofSveriges Riksbank and Chairman of the BaselCommittee on Banking Supervision

(At the 7th H igh-Level Meeting jointly organised by the Association ofSupervisors of Banks of the Americas, the Basel Committee on BankingSupervision and the Financial Stability Institute, Panama City, Panama)

Challenges in housing and mortgage markets

Speech by Mr Ben S Bernanke, Chairman of the Boardof Governors of the Federal Reserve System, at theOperation HOPE Global Financial Dignity Summit,Atlanta, Georgia.



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Gerri Walsh

Statement for the Record for Senate Special Committee on

Aging Hearing

Guidelines on Complaints-Handlingby Insurance Undertakings

EIOPA Guidelines on Complaints -Handling by Insurance Undertakingstranslated into all the official EUlanguages

International monetary policy interactions:challenges and prospectsSpeech by Jaime CaruanaGeneral Manager, Bank for International Settlements

To the CEMLA-SEACEN conference on The role ofcentral banks in macroeconomic and financialstability: the challenges in an uncertain and volatile world Punta delEste, Uruguay

Combating Financial Crime: Key themes and Priorities for 2013Speech by Tracey McDermott, director of theEnforcement and Financial Crime Division at theAPCIMS Conference



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Islamic Finance Prospectsin Africa: Speech

Islamic Banking Summit Africa | Republic of DjiboutiSpeaker : Jaseem Ahmed, Secretary General, IFSB

Kiyohiko G Nishimura: Ageing, finance andregulations

Keynote address by Mr Kiyohiko G Nishimura, DeputyGovernor of the Bank of Japan, at theJoint Forum Meeting, Tokyo

William C Dudley: Solving the too big to failproblem

Remarks by Mr William C Dudley, President and ChiefExecutive Officer of the Federal Reserve Bank of New

York and President of the Committee on the GlobalFinancial System (CGFS), at the Clearing HousesSecond Annual Business Meeting and Conference, New

York City



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U.S. Securities and ExchangeCommission

Annual Report on the Dodd-FrankWhistleblower ProgramFiscal Year 2012

This is a Report of the Staff of the U.S. Securities and ExchangeCommission. The Commission has expressed no view regardingthe analysis, findings, or conclusions contained herein.

Introduction

Section 922 of the Dodd-Frank Wall Street Reform and ConsumerProtection Act (the Dodd-Frank Act), amended the SecuritiesExchange Act of 1934 (the Exchange Act) by, among other things,adding Section 21F, entitled Securities Whistleblower Incentives andProtection.

Section 21F directs the Commission to make monetary awards to eligibleindividuals who voluntarily provide original information that leads tosuccessful Commission enforcement actionsresulting in the imposition

of monetary sanctions over $1,000,000, and certain successful relatedactions.

Awards are required to be made in the amount of10% to 30% of themonetary sanctions collected.

Awards will be paid from the Commissions Investor Protection Fund (theFund).

In addition, 924(d) of the Dodd-Frank Act directs the Commission toestablish a separate office within the Commission to administer and toeffectuate the whistleblower program.



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Section 924(d) of the Dodd-Frank Act requires the CommissionsOfficeof the Whistleblower (the Office orOWB) to report annually toCongress on OWBs activities, whistleblower complaints, and theresponse of the Commission to such complaints.

In addition, Exchange Act 21F(g)(5) requires the Commission tosubmit an annual report to Congress that addresses the followingsubjects:

The whistleblower award program, including a description of thenumber of awards granted and the types of cases in which awards weregranted during the preceding fiscal year;

The balanceof the Fund at the beginning of the preceding fiscal year;

The amounts deposited into or credited to the Fund during thepreceding fiscal year;

The amount of earnings on investments made under Section 21F(g)(4)during the preceding fiscal year;

The amount paid from the Fund during the preceding fiscal year towhistleblowers pursuant to Section 21F(b);

The balance of the Fund at the end of the preceding fiscal year; and

Acomplete set of audited financial statements, including a balancesheet, income statement and cash flow analysis.

This report has been prepared by OWB to satisfy the reportingobligations of Dodd-Frank Act 924(d) and Exchange Act 21F(g)(5).

Activities of The Office of The Whistleblower

Section 924(d) of the Dodd-Frank Act directs the Commission to establisha separate office within the Commission to administer and to enforce theprovisions of Exchange Act 21F.



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On February 18, 2011, the Commission announced the appointment ofSean X. McKessy to head OWB in the Division of Enforcement(Enforcement).

On January 17, 2012, the Commission named Jane A. Norberg as theOffices Deputy Chief.

In addition to Mr. McKessy and Ms. Norberg, the Office is currentlystaffed by eight attorneys, three paralegals, and one program supportspecialist.

Since its establishment, OWB has focused primarily on establishing theoffice and implementing the whistleblower program.

During Fiscal Year 2012, theOfficesactivities included the following:

Communicating with whistleblowerswho have sent tips, additionalinformation, claims for awards, and other correspondence to OWB.

OWB alsomeets with whistleblowers, potential whistleblowers and theircounsel, and consults with the staff in Enforcement to provide guidanceto whistleblowers and their counsel concerning expectations and followup;

Reviewing and processing applications for awards;

Working with staff in Enforcement to identify and track all enforcementcases potentially involving a whistleblower to assist in the documentationof the whistleblowers information and cooperation in anticipation of aneventual claim for award;

Maintaining and updating the OWB website to better inform the publicabout the whistleblower program (www.sec.gov/ whistleblower).

The website includes two videos by Mr. McKessy providing an overviewof the program and information about how tips, complaints and referralsare handled.

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The website also contains detailed information about the program, copiesof the forms required to submit a tip or claim an award, notices of coveredactions, links to helpful resources, and answers to frequently askedquestions;

Supporting the initiative of the Residential Mortgage Backed Securities(RMBS) Fraud Working Group, a working group of the Financial FraudEnforcement Task Force established by President Obama in November2009, by establishing an online link to the OWB website from the memberagencies of the RMBS Fraud Working Group for the public to submit tipsand complaints about possible illegal activity in the offering and sale ofresidential mortgage-backed securities.

The OWB website was also updated in connection with this initiative to

include a page providing an overview of the RMBS Fraud Working Groupand a direct link to report RMBS fraud.

OWB further supported the initiative by helping to implementprocedures,consistent with the confidentiality requirements of ExchangeAct 21F(h)(2), to permit the Enforcement staff to share whistleblowertips with the member agencies of the RMBS Fraud Working Group;

Providing extensive training on the Dodd-Frank Act and theCommissions implementing rules (the Final Rules) to the

Commissionsstaff.

This included in-person training and educational sessions in seven of theeleven Regional Offices, video-linked training to the entire Enforcementstaff, as well as training in the Home Office;

Establishing and implementing internal policies, procedures, andprotocols;

Manning a publicly-available whistleblower hotline for members of thepublic to call with questions about the program.

OWB attorneys return all calls within 24 business hours.



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During the 2012 fiscal year, the Office returned over 3,050 phone callsfrom members of the public;

Reviewing and entering whistleblower tipsreceived by mail and fax intothe Commissions Tips, Complaints, and Referrals System (the TCRSystem);

Conferring with regulators from other agencieswhistleblower offices,including the Internal Revenue Service, Commodity Futures TradingCommission, Department of Justice, and Department of Labor (OSHA),to discuss best practices and experiences;

Publicizing the program actively through participation in webinars,media interviews, presentations, press releases, and other public

communications; and

Providing ongoing guidance to Commission staff regarding variousaspects of the program, including the development of internal policies forthe handling of confidential whistleblower identifying information.

Whistleblower Tips Received During Fiscal Year 2012

The Final Rules specify that individuals who would like to be consideredfor a whistleblower award must submit their tip to OWB on Form-TCR

either via facsimile or mail or via the Commissionsonline TCRquestionnaire portal.

All whistleblower tips received by the Commission are entered into theTCR System, the Commissionscentralized database for theprioritization, assignment, and tracking of TCRs received from thepublic.

In Fiscal Year 2012, 3,001 whistleblower TCRs were received.

The most common complaint categories reported by whistleblowers wereCorporate Disclosures and Financials (18.2%), Offering Fraud (15.5%),and Manipulation (15.2%).



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The Commission received whistleblower submissions from individuals inall 50 states, the District of Columbia and the U.S. territory of Puerto Rico,as well as 49 countries outside the United States.

Processing of Whistleblower Tips During Fiscal Year 2012

OWB currently leverages the resources and expertise of the CommissionsOffice of Market Intelligence (OMI)to evaluate incomingwhistleblower TCRs and to assign specific, timely, and credible TCRs tomembers of the Enforcement staff for further investigation.

During the evaluation process, both staff and supervisors in OMIexamine each tip to identify those that are sufficiently specific, timely,and credible to warrant the further allocation of Commission resources.

Tips that relate to an existing investigation are generally forwarded to thestaff working the existing matter.

Tips that could benefit from the specific expertise of anotherDivision or Office within the Commission are generally forwarded to staffin that Division or Office for further analysis.

When appropriate, tips that fall within the jurisdiction of another federalor state agency are forwarded to the Commission contact at that agency,

provided this can be done consistent with the confidentialityrequirements of Exchange Act 21F(h)(2).

Tips that relate to the financial affairs of an individual investor or adiscrete investor group, and that are determined not to be strongcandidates for further expenditure of the Commissions investigativeresources, are usually forwarded to the Office of Investor Education andAdvocacy (OIEA).

Comments or questions about agency practice or the federal securitieslaws are alsoforwarded to OIEA.

OWB supports the tip allocation and investigative processes in severalways.



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When whistleblowers submit tips on Form TCR in hard copy via mail orfax, OWB enters this information into the TCR System so it can beevaluated.

During the evaluation process, OWB may assist by contacting thewhistleblower to obtain additional information, or may participate in thequalitative assessment of the best course of action to take in response to awhistleblower tip.

During an investigation, OWB is available as needed to serve as a liaisonbetween the whistleblower (and his or her counsel) and investigative staff.

On occasion, OWB arranges meetings between whistleblowers andsubject matter experts on the Enforcement staff to assist in better

understanding the whistleblowerssubmissions and developing the factsof specific cases.

OWB staff also communicates frequently with Enforcement staff withrespect to the timely documentation of information regarding the staffsinteractions with whistleblowers, the value of the information provided bywhistleblowers, and the assistance provided by whistleblowers as thepotential securities law violation is being investigated.

Whistleblower Incentive Awards Made During Fiscal Year 2012

OWB posts a Notice of Covered Action for each Commissionenforcement action where a final judgment or order, by itself or togetherwith other prior judgments or orders in the same action issued after July21, 2010, results in monetary sanctions exceeding $1 million.

Once a Notice of Covered Action is posted, individuals have 90 calendardays to apply for an award by submitting a completed Form WB-APP toOWB by the claim due date listed for that action.

Timely submitted applications are reviewed by the staff designated by theDirector of Enforcement (Claims Review Staff) in accordance with thecriteria set forth in the Dodd-Frank Act and Final Rules.



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The Claims Review Staff is currently comprised of four senior officers inEnforcement and a senior attorney in the Office of the General Counsel.

To assist the Claims Review Staff in its review, OWB prepares a binder ofrelevant documents and a recommendation concerning the appropriatedisposition of the award claim.

The Claims Review Staff then makes a Preliminary Determination settingforth its assessment as to whether the claim should be allowed or deniedand, if allowed, setting forth the proposed award percentage amount.

If a claim is denied and the applicant does not object, then thePreliminary Determination of the Claims Review Staff becomes the FinalOrder of the Commission.

However, an applicant can ask for reconsideration of the PreliminaryDetermination, in which event the Claims Review Staff considers theissues and grounds advanced in the applicants response, along with anysupporting documentation provided.

After this additional review, the Claims Review Staff issues a ProposedFinal Determination, and the matter is forwarded to the Commission forits decision.

In addition, all Preliminary Determinations of the Claims Review Staffthat involve an award of money are forwarded to the Commission asProposed Final Determinations irrespective of whether the applicantobjected to the Preliminary Determination.

These procedures ensure that all claims for which a monetary award isrecommended and all preliminary denials of claims to which theapplicant objects are put before the Commission for final decision.

Within 30 days of receiving notice of the Proposed Final Determination,any Commissioner may request that the Proposed Final Determinationbe reviewed by the full Commission.



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If no Commissioner requests such a review within the 30-day period, thenthe Proposed Final Determination will become the Final Order of theCommission.

In the event a Commissioner requests a review, the Commission reviewsthe record that the Claims Review Staff relied upon in making itsdeterminations and issues its Final Order.

During Fiscal Year 2012, the Commission made its first award under thewhistleblower program.

On August 21, 2012, a whistleblower who had helped the Commissionstop an ongoing multi-million dollar fraud received an award of 30percent -- the maximum percentage payout allowed by law -- of the

amount collected in the Commissions enforcement action against theperpetrators of the scheme.

The award recipient in this matter submitted a tip concerning the fraudand then provided documents and other significant information thatallowed the Commissions investigation to move at an accelerated paceand ultimately led to the filing of an emergency action in federal court toprevent the defendants from ensnaring additional victims and furtherdissipating investor funds.

The whistleblowers assistance led to the court ordering more than $1million in sanctions, of which approximately $150,000 had been collectedby the end of the fiscal year.

In accordance with the 30 percent award determination, on August 21,2012, the whistleblower was paid nearly $50,000.

Motions for additional judgments are currently pending before the courtand any additional collections or increase in the sanctions ordered andcollected will increase the amount paid to the whistleblower.

As noted below, whistleblowers receive their awards from the Securitiesand Exchange Commission Investor Protection Fund (Fund)established pursuant to Section 922 of the Dodd-Frank Act.



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During the 2012 fiscal year, OWB posted 143 Notices of Covered Actionfor enforcement judgments and orders issued during the applicableperiod that included the imposition of sanctions exceeding the statutorythreshold of $1 million.

OWB is continuing to review and process applications for awardsreceived during the 2012 fiscal year.

Securities and Exchange Commission Investor Protection Fund

Section 922 of the Dodd-Frank Act established the Fund to providefunding for the Commission's whistleblower award program, includingthe payment of awards in related actions.

In addition, the Fund is used to finance the operations of the SEC Officeof the Inspector Generalssuggestion program.

The suggestion program is intended for the receipt of suggestions fromCommission employees for improvements in the work efficiency,effectiveness, and productivity, and use of resources at the Commission,as well as allegations by Commission employees of waste, abuse,misconduct, or mismanagement within the Commission.

The following table provides certain of the information required by

Exchange Act 21F(g)(5) for the 2012 fiscal year (October 1, 2011 throughSeptember 30, 2012).

As of September 30, 2012, the Fund was fully funded, with an endingbalance of $453,429,825.58.



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The audited financial statements for the Fund, including a balance sheet,income statement, and cash flow analysis are included in theCommissionsAgency Financial Report, separately submitted to Congressand accessible at http:/ / www.sec.gov/ about/ secafr2012.shtml.

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Current focus of the Basel Committee:Raising the bar

Remarks by Mr Stefan I ngves, Governor ofSveriges Riksbank and Chairman of the BaselCommittee on Banking Supervision

(At the 7th H igh-Level Meeting jointly organisedby the Association of Supervisors of Banks of theAmericas, the Basel Committee on Banking Supervision and theFinancial Stability Institute, Panama City, Panama)

I am very pleased to be here for this year's High-Level Meeting,

organised by ASBA, the Basel Committee and the FSI.

At its meeting in March of this year, the Basel Committee discussed anumber of strategies for enhancing its relationship and communicationswith non-Basel Committee member countries.

One proposal that was readily endorsed by Committee members was toestablish even closer collaboration with the FSI with regard to itsHigh-Level Meetings.

Many of our members are familiar with these well-established annual

conferences, which draw together senior central bankers and supervisoryofficials from various regions of the world.

In addition to last year's ASBA-FSI event, I have participated in severalother high level meetings this year.

The feedback that I and my Basel Committee colleagues have gainedfrom these events has been both illuminating and insightful.

When we met last year in San Francisco, I called for action on two items:first, guarding against supervisory complacency, and second, putting into

practice the regulatory reforms that were developed to raise the resilienceof banks and banking systems to future shocks.



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These two themes - putting policies into practice, and recognisingsupervision as an essential complement to regulation - continue topervade the Basel Committee's work.

I am going to repeat these themes today, although in doing so I am not

suggesting we have failed in our efforts in the past.

On the contrary, we have made good progress in both areas.

But more needs to be done.

I will share with you today some of the Committee's efforts to furtherthese objectives.

I will also say a few words about our ongoing policy work since there isalso more to be done to fully reflect lessons learnt from the crisis.

Supervision matters

I will start with supervision.

I have been quite vocal in warning that the Basel I I I Framework is notsufficient - by itself - to set banks and banking systems on a clear path tobecoming stronger and more resilient.

It must be matched in practice by good supervision.

Good regulation empowers firm supervision, and firm supervisionenforces good regulation.

They are mutually reinforcing, and it is unrealistic to think that one canbe successful without the other.

Basel II I provides a better rulebook by which to judge the safety andsoundness of banks, but the crisis taught us that we also need bettersupervision.

And better supervision begins with the basic building blocks, which is the

Core Principles for Effective Banking Supervision.



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Core Principles for Effective Banking Supervision

Every financial crisis is an opportunity to reflect on what went wrong,what worked well and what improvements can be made.

This is true for bankers and risk managers, for policy makers, and, ofcourse, for bank supervisors.

For the Basel Committee, the supervisory lessons learnt from the financialcrisis prompted our review of the Core Principles.

While Basel I I I has attracted most of the attention, its effectiveness willonly be realised if it rests on a solid bedrock of supervision andimplementation.

The Core Principles provide such a foundation.

The revised Core Principles were published in September, with theendorsement of supervisors and central bankers representing more than100 countries that were gathered in I stanbul for the 17th InternationalConference of Banking Supervisors.

The latest revision was conducted jointly with the Basel ConsultativeGroup, which comprises banking supervisors from both member andnon-member countries of the Basel Committee, as well as regional groupsof banking supervisors, the IMF, the World Bank and the Islamic

Financial Services Board.

The review took account of post-crisis lessons and other significantsupervisory developments.

At the same time, we have remained mindful of the fact that the CorePrinciples are applied on a global basis and that we need to maintaincontinuity and comparability.

We have not sought to reinvent the wheel: many of the revisions aredesigned to reinforcethe fundamentals of banking supervision by

emphasising effective risk-based analysis, a more forward-lookingperspective and early intervention.



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Given the importance of these basic principles as the foundation for anysupervisory regime, it is imperative that they be implemented withdetermination and rigour around the globe.

As many of you would already know, the revised Principles have been

reorganised to highlight the difference between what supervisors do andwhat they expect banks to do.

The principles covering supervisory expectations of banks emphasise theimportance of good corporate governance and risk management, as wellas compliance with supervisory standards.

In addition, the review took account of several key trends anddevelopments that emerged during the last few yearsof market turmoil, inparticular the need for greater intensity and resources to deal effectively

with systemically important banks.

Our agenda for this High-Level Meeting includes an in-depth review anddiscussion of the revised Core Principles, so I will not go into any moredetail now.

Let me simply make one very important point.

In discussing the revisions to the Core Principles, the Committee wasclear in its objective:we wanted to raise the bar.

Just as we needed to lift regulatory requirements that were too low, thestatus quo for supervision was not going to be acceptable either.

An enhancement of supervisory capabilities is necessary if we want tokeep pace with the increasingly complex, diverse and interconnectedfinancial system.

We cannot stand still.

More importantly, and as I have stressed previously, we cannot allowourselves to think that just because the problems in the banking system

did not occur in our backyard this time will mean that they will not occurthere in the future.



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Systemically important banks

The financial crisis that began in 2007 not only reminded us of the criticalrole of intensive supervision, it also reminded us of the importance ofsystemically important banks.

During the crisis, the failure or impairment of a number of large, globalfinancial institutions sent shocks through the financial system which, inturn, harmed the real economy.

The shocks were exacerbated when it became apparent that supervisorsand other relevant authorities had limited options to deal with thesebanks, and therefore to prevent the problems from spreading through thefinancial system.

As a consequence, public sector intervention to restore financial stability

during the crisis was not only necessary, but had to be conducted on amassive scale.

In response, the Committee adopted a series of reforms that, onceimplemented, will raise the resilience of banks and banking systems.

These reforms will have a particular impact on global systemicallyimportant banks (G-SIBs) since their business models have generallyplaced greater emphasis on trading and capital markets related activities,which are most affected by the enhanced risk coverage of the capital

framework.

But Basel I I I is a minimum standard, and is not enough to address theunique risks posed by G-SIBs, the moral hazard associated with theperception that these firms are too big to fail, nor the cross-borderrepercussions that problems in a G-SIB would create.

To alleviate these problems, the Committee sought to raise the bar furtherfor these largest banks.

We developed an assessment methodology for determining global

systemic importance, and prescribed additional loss absorbencyrequirements for banks deemed systemically important.



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The G20 Leaders endorsed these rules at their summit last year.

At that time, they asked the Basel Committee and the Financial StabilityBoard to work on extending the framework to domestic systemicallyimportant banks (D-SIBs).

There are many banks that are not significant from an internationalperspective, but nevertheless could have an important impact on theirdomestic financial system and economy compared to non-systemicinstitutions.

The Committee has recently published its framework for dealing withD-SIBs, which is a topic of discussion for this High-Level Meeting.

Our goal was to develop a D-SIB regime which was complementary to theG-SIB regime, while at the same time recognising that different

jurisdictions will wish to deal with domestic priorities in different ways.

The D-SIB framework therefore identifies a set of common actions thatall jurisdictions are expected to undertake, but leaves the detailed natureof those actions and the specific policy responses to national discretion.

My main message for today is that critical to the success of this approachand the interaction with the G-SIB framework is the need for strong andcooperative dialogue between home and host supervisors where a bankfrom one country is designated a D-SIB in foreign jurisdiction.

Implementation

Supervision is a top priority for the Basel Committee, and implementationof Basel I I I is another.

We have seen signs of progress on implementation in some countries, butmuch more is needed.

Rules and regulations have to be consistently formulated and effectivelyapplied. The implementation process is, therefore, a continuing one.

At its September 2011 meeting, the Basel Committee agreed to initiate aprogramme to review members' implementation of the Basel regulatoryframework (which includes Basel I I, Basel 2.5 and Basel I I I ).



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This is a comprehensive programme which seeks to spur fullimplementation of the Basel standards within the agreed timelines - thisis something that the Committee has not previously done.

The Committee has no doubt that with proper implementation, the

regulatory reforms - both those already announced and those still in thepipeline - will help make banking systems more resilient.

That is why the G20 Leaders have also asked us to keep focus onimplementation issues and finish the job.

In Mexico recently, the G20 Finance Ministersand Central BankGovernors said:

"We remain committed to the full, timely and consistent implementationof the financial regulation agenda - We agree to take the measures neededto ensure full, timely and effective implementation of Basel II , 2.5 and I I Iand its consistency with the internationally agreed standards."

Three baseline assessments (the European Union, Japan and the UnitedStates) covering 11 Committee member jurisdictions have beencompleted and the reports have been published.

Preparatory work relating to the next round of country assessments isunder way and includes Australia, Brazil, Canada, China, Singapore andSwitzerland.

A system offollow-up for those assessments already completed is beingdesigned and will be part of the regular implementation process goingforward.

The Basel Committee'ssystematic review of implementationis helping toidentify the regulatory fault lines early on by providing Committeemembers a detailed and a point-of-time review of the progress made andthe materiality of the shortcomings.

As intended, the assessments are developing as a means to an end rather

than an end in themselves.

The expectation is that our assessments will help create a dependableglobal regulatory environment that will also help strengthen supervisoryefficacy.



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The assessments we have thus far conducted demonstrate the strongcooperative nature of the programme.

It involves senior-level experts from different jurisdictions, technicalcounterparts and select industry participants from the assessed

jurisdiction, and the Committee's Secretariat.

The expert nature of the country assessments is central to its legitimacy.

Apart from assessing the regulatory consistency and materiality of thegaps, the Basel II I implementation process has drilled down to the levelof individual bank portfolios, and I expect the work will help us to identifythe key drivers of variations in risk-weighted assets across banks, across

jurisdictions and across time.

As other Basel standards and policies are completed - such as those

relating to liquidity, G-SIBs and large exposures - the focus onimplementation is expected to rise.

The implementation work is also helping inform the Committee'songoing policy initiatives.

This is an important feedback loop for the Basel Committee as ourpremise is that tougher capital and liquidity rules under the Basel II IFramework are entirely appropriate for reducing the likelihood of failurefor systemically important banks.

Assessing implementation and the application of the Basel frameworkamong Committee members also becomes important for manynon-member countries where banks from BCBS jurisdictions operate andbecome systemically relevant.

Their failure may not even be seen as a viable option since these banksplay a critical economic role in credit intermediation and maturity andrisk transformation.

Proper implementation of Basel II I will enable internationally active

banks in emerging and developing markets to perform their role in asafer, prudent and economically constructive fashion.

When globally active banks manage their capital and liquidity prudently,they act as a source of financial stability in the relevant jurisdiction.



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But an important pre-condition is that such banks must play by theinternational norms.

Collectively, the regulatory requirements and the supervisory standardsshould push these banks along the path of the intended post-crisis reform

agenda so that even during times of stress the banking system operateswithout material disruption to the financing of economic activities.

Further regulatory reforms are needed

The reforms to the capital adequacy rules have been substantial, and theBasel Committee's efforts to ensure they are put into practice properlyand in a timely way have been considerable.

But we cannot say that our work to further improve the regulatoryframework is complete.

Liquidity

Basel I I I's liquidity rules are themost obviouselement of the regulatoryframework that we are working to finalise.

Forging agreement on minimum liquidity rules for international bankshas been a longstanding but elusive goal for supervisors and centralbankers.

Indeed, Sir George Blunden, the Basel Committee's first chairman,opened the Committee's very first meeting in 1975 by noting that itsmandate was "to help ensure bank solvency and liquidity".

While the Committee's reputation has been founded on the first part ofthe task, it has taken 35 years - until Basel I I I was agreed in 2010 - to findsuccess on the second.

Liquidity is an extraordinarily difficult and multifaceted topic.

There are a wide range of views on how to define liquidity, as well as on

how best to supervise, regulate and manage its risk.

For example, in 1984 some of the questions relating to liquidity discussedby the Committee included:



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What constitutes liquidity for an international bank, and how can it bemeasured?

- What should be the role of particular asset classeswithin an overallapproach to liquidity in an international context?

- How does the degree of maturity transformation undertaken affect abank's liquidity?

- To what extent can lending in the interbank market constituteliquidity? Does the ability of banks to draw funds from the interbankmarket affect the extent to which they need liquid assets?

- What are the basic supervisory approaches to liquidityused by thedifferent countries represented on the Committee?

-What relationship do these approaches bearto the monetary policiesapplied by the central banks?

These questions remain highly relevant, and they are just as difficult asthey were then, but I am pleased to say that the Committee has now cometo grips with them.

What has changed?

While the persistently increasing globalisation and interconnectedness ofour financial systems were known to be creating potential vulnerabilities,

there wasno consensus on how (or how urgently) to deal with it.

Unfortunately, it took a global financial crisis to provide the necessaryimpetus for agreeing on the Basel II I liquidity rules.

So the storm clouds of the crisis at least had a silver lining in that respect.

As you know, the liquidity rules are comprised of a short-term LiquidityCoverage Ratio (LCR) and a longer-term, structural Net Stable FundingRatio (NSFR).

Since these represent the first time we have had global standards, theCommittee agreed that we would review and, if necessary, refine thembefore they came into force.



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And the question everyone therefore wants to know is where do wecurrently stand with respect to finalising them, particularly the LCRwhich is due to come into force in 2015?

The Committee is aiming to reach agreement by its December meeting

on a few outstanding issues.

As any bank supervisor, central banker or risk manager can attest, this isvery difficult work given the wide range of issues we must consider.

It has far-reaching implications, for example, for banking, financialmarkets and monetary policy, and for this reason our work has beenundertaken with considerable care and caution.

It is important to note that several countries have already adopted theliquidity framework in their jurisdictions, including Sweden, and I am

pleased to say the Swedish experience with liquidity regulation has beenvery positive.

For more than a year now Swedish banks have been reporting theirliquidity coverage ratios to Sveriges Riksbank and the Swedish FSA, andthe large banking groups also disclose their LCR publicly.

Furthermore, from January 2013 minimum standards for the LCR will beintroduced for the largest banking groups, both on an aggregated basisand separately in euro and US dollars.

The results so far are reassuring and there are no signs that monetarypolicy operations or the functioning of the interbank market have beenaffected by the implementation of the LCR.

Given the implications and potential costs - not the least of which are thesocial costs - of not raising the bar for liquidity requirements and liquidityrisk management in banks, we would be failing in our responsibilities ifwe did not push on to finalise these proposals in the near future.

Trading book and securitisation

Let me now turn to the work we are doing with respect to some of thecapital rules.



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Following on from the changes introduced in Basel 2.5, the Committee isnow undertaking a more fundamental review of the trading book and thesecuritisation rules.

With respect to the former, we want to achieve a regulatory framework

that promotes more comparable levels of capital across banks with similartrading book portfolios.

We also aim to provide more transparency, and limit arbitrage betweenthe banking and trading books.

Regarding securitisation, the complexity of the products, lack oftransparency and poor underlying incentives led to massive losses.

The Committee's objective is to address these weaknesses by makingcapital requirements for securitisation products simpler, better reflectiveof risk, less reliant on credit ratings and without significant cliff effects.

Standardised approaches

Also on the agenda in 2013 is to improve the standardised approaches forcredit and operational risk.

Our aim is to ensure these approaches continue to be suitable forassessing the capital adequacy of internationally-active banks - as well asother banks - that are not using the advanced approaches for risk

measurement.

While it would be premature to say what the result of our deliberationswill be, one issue to be considered will be the extent to which the revisedstandardised approaches could also serve as a backstop or benchmark tothe models-based approaches (eg banks, when publishing theirrisk-weighted assets, could be required to reference the calculationsbased on the standardised approaches).

Linking the standardised approach with the models-based approach isalready being considered in the fundamental review of the trading book.

Using the standardised approaches as a backstop or benchmark couldhelp increase the comparability of risk-weighted asset calculationsamong banks and jurisdictions.



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Large exposures

Another important regulatory policy that is under review by theCommittee is the large exposures regime.

The Committee's original guidance - Measuring and controlling largecredit exposures - was published in January 1991.

It was successful in promoting broad convergence in the supervision oflarge exposures, while recognising the scope for variation according tolocal conditions.

However, it is fair to say that the regulation of large exposures hasbecome increasingly inconsistent.

While there is considerable apparent homogeneity in the general

approaches being adopted, there are significant differences in thespecifics.

Another lesson from the crisis has been that we did not pay sufficientattention to risk concentrations.

This makes a strong case for a more consistent and effective frameworkfor large exposures.

Such an internationally consistent framework would ensure a levelplaying field, reinforce consistency in underlying capital requirements(since the capital framework does not directly capture concentrations)and avoid loopholes or exemptions where risks can build up undetected.

The Committee is therefore examining the merits of a more consistentapproach to large exposures, and will publish its proposals for commentduring the course of 2013.

Other areas for review

Let me quickly touch upon two other areas on the Committee's agenda:

one a broad theme, and the other a specific initiative that is supervisory innature.



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Simplicity and comparability

I am the first to acknowledge that a number of areas of the regulatoryframework have become increasingly complex over the years.

As a result, the Committee has this year been evaluating ways in which itcan be simplified, without materially altering its underlying objective orstrength.

There is a fine balance that must be achieved.

The use of a regulatory measure that is too simple and blunt can providestrong, perverse incentives for banks.

On the other hand, there is a limit to how much faith we should put intothe complexity and sophistication of models.

A specific example of the Committee's current thinking is our recentannouncement on the regulatory treatment of debit valuationadjustments (DVAs).

This is a complex issue relating to the impact of a bank's own credit riskon the valuation of derivative transactions.

To precisely measure this impact, which we wished to remove from thecapital base, would have been extremely complex and difficult.

The maths and analysis necessary would be beyond the capabilities of theaverage bank supervisor - let alone a central bank Governor!

The Committee therefore decided on a more simplistic, but conservative,treatment.

This was criticised for not being precise enough and therefore potentiallyoverstating the risk.

But the Committee decided that there was a trade-off to be made, andthat the additional precision involved in refining the approach was notworth the cost involved.

The message here is not that the Committee is dismissive of the benefitsor desirability of risk sensitivity, but rather that it needs to be traded offagainst other objectives.



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At some point it is inevitable that the never-ending pursuit of greaterprecision in risk measurement is not worth the effort - indeed, it can leadto a dangerous false sense of precision, which is best avoided.

Capital planning

Given that we have raised minimum capital requirements, capitalplanning will necessarily become more important - both for banks andtheir supervisors.

Recognising this, we have established a task force to examine currentindustry practices and develop guidance on good capital planningprocesses.

This work is looking at issues such as:

-processes for establishing targets for the level and composition ofcapital;

- monitoring and decision making with respect to capital;

- linkages to strategic plansand other business planningconsiderations; and

-coordination with the assessment of firms' risk profile and appetite.

The objective of this work is not a new policy that will impose specific

requirements on banks such that every bank does its capital planning inthe same way.

Rather, it will be sound guidance that banks and supervisors can use tohelp judge whether an individual bank has a robust capital planningprocess, given its size, shape and complexity.

This will be particularly important in a Basel I I I world, with a number ofcapital constraints (CET1, Tier 1 and total risk-based ratios, and theleverage ratio) and buffers (capital conservation, countercyclical and SIB

surcharges) to which banks will need to manage.



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Conclusion

I would like to bring my remarks to a close by emphasising as I did at theoutset that regulatory reform has two essential complements: supervisionand implementation.

Even strong international regulations will be ineffective if they are notimplemented fully or if the associated supervisory regime is weak.

Hence, the Committee israising the barin all three areas.

First, it is obvious that we have been working to strengthen the regulatoryframework.

This is not just in the form of Basel II I, but also the work we havecompleted on SIBs, and the work still in train on the trading book,

securitisation and large exposures.

Second, we have been much more proactive in making sure that theinternational agreements are implemented in full, on time and in aconsistent manner.

And, finally, we have used the revisions to the Core Principlesto also raisethe bar for supervision. Doing one is not enough; neither is doing two.

We need to raise the bar in all three areas if we are to achieve a robust andresilient financial system for the future.



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Ben S Bernanke: Challenges in housing andmortgage markets

Speech by Mr Ben S Bernanke, Chairman of the Boardof Governors of the Federal ReserveSystem, at the Operation HOPE Global FinancialDignity Summit, Atlanta, Georgia,

Good afternoon. I d like to thank John Bryant andOperation HOPE for inviting me to speak today.

Id also like to congratulate Operation HOPE and the Ebenezer BaptistChurch on the grand opening of the HOPE Financial Dignity Center,

which holds the promise of becoming a tremendous resource for thepeople of Atlanta and sits next to Martin LutherKings home church.

DrKings legacy to our society is strong and enduring, and the newcenter is very much in the spirit of his work.

The past few years have been difficult for many Americans and theircommunities.

At the Federal Reserve, we understand the depth of the problem and the

need for action, and we will continue to use the policy tools that we haveto help support economic recovery.

We also know that the burdens of a weak economy and the benefits ofeconomic growth often are not equally shared, and that, to be trulyeffective, policymakers must take into account how their decisions affectthe least advantaged, not just the economy as a whole.

My remarks today will focus on an important part of our economy, the

housing sector.

Housing and housing finance played a central role in touching off thefinancial crisis and the associated recession, and the ensuing wave offoreclosures wreaked great damage on communities across the country.

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risk management presentation november 26 2012

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