Mr. William Beausang:

You see Basel II created a whole infrastructure, a whole industry, there was a Basel II industry around applying what was ... I mean maybe a good illustration of the complexity that was involved in Basel II; the original Basel I framework I think is described is 30 pages long, the second one is well over 300 and is, you know, hugely complex, technical, based on what was considered, at the time, best practice in terms of risk modelling, credit assessment and so on.

I think part of the difficulty was that from, obviously from the banks' perspective - to the extent that they paid any attention to this - but certainly from the regulator's, that as sometimes happens with all kinds of models, the model itself becomes the oracle in terms of whether something is working, is perceived to be working, or otherwise, rather than, as I'm sure people more expert to talk about Basel II would tell you, that it's meant to be just an aid to decision making or to the exercise of supervisory judgment.

But, I mean, it's important to make the point that when you talk about Basel II that it wasn't just a kind of technical modelling exercise. There was three pillars to it and one of the most ... the second pillar to it was what was called the supervisory review. It was characterised by the IMF in June 2008 as the heart and soul of the framework, which adds a solid layer of supervisory judgment to more rules-based approach of pillar 1. That's the modelling piste. It's built around principles that define roles and responsibilities of banks and their supervisors in the assessment of capital adequacy which include, as well as go beyond, the risk covered in pillar 1.

So, Basel I envisaged that you'd have this modelling and you'd have this sophisticated risk management systems but you'd also have supervisors assessing whether the modelling of risk was capturing all the risks in the institutions. But, I mean, it's absolutely clear, although I don't have direct knowledge of it, that the time, energy and resources in the Financial Regulator in just putting that model in place in a small country - you would have heard in talking to the people from the FR, you know, their staff resources, the limits on staff resources - it was a huge exercise, and in the banks themselves. And I think that point is made, either in the Honohan report or the Nyberg report that, as far as the banks were concerned, the risk management experts were taken off the day-to-day assessment of the risks the banks were carrying, to help create this infrastructure that the banks would need going forward to be competitive in capital markets, you know, under the Basel framework.