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The Practical Banker's Perspective on Precommitment



The Practical Banker's Perspective on Precommitment ROLF ENDERLI* Ladies and Gentlemen, I am very glad to have the opportunity to speak to you today about a practical banker's perspective on the precommitment approach. Please let me first state my opinion, that we are at a very critical point of banking reg- ulation. This is mainly because banking has become much more complex since the in- troduction of the Basle Accord in 1988. It can be explained to a major extent by taking into account the following tendencies caused by advances in information technology. These advances allowed risks to be split into their separate parts, traded in separate in- struments respectively. Some instruments and their embedded risks therefore now seem more complex. In fact, they are not, however, appear with another face. Banks have re- sponded to this seemingly more complex instruments with sophisticated risk manage- ment systems. Regulators on the other hand have continuously responded to this by more detailed regulations. Advances in information technology together with the ongoing globalisation of financial markets, deregulation in various jurisdictions have finally also lead to a significant increase in competition, which is now taking place on a global level. Keeping these tendencies in mind, I would like to continue by first reviewing some general assumptions of the current regulatory principles. I will then continue by dis- cussing some questions arising with the implementation of the precommitment approach solely for market risks in the trading book. Then I will analyse whether it would also be a useful approach for a universal bank such as UBS. Finally I will turn back to the basic question, whether capital as such can foster the safety of individual institutions and de- crease systemic risk for the whole economy. In looking at the current regulatory regime, we should apply the principle «Sharpen the Saw». We realize that all amendments to the Basle Accord have something in com- m

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