| More than a decade has passed since the Basel Committee on Banking Supervision introduced a capital measurement system commonly referred to as 1988 CaDital Accord (the Accord). The business of banking, risk management practices, supervisory approaches, and financial markets each have undergone significant transformation since then. The Accord provided for the implementation of a credit risk measurement framework with a minimum capital standard. since 1988, this framework has been progressively introduced not only in member countries but also in virtually all other countries with active international banks. In June 1999, the Committee issued a proposal for a New Capital Adequacy Framework to replace the 1988 Accord. The proposal capital framework consists of three pillars: minimum capital requirements, which seek to refine the standardised rules set forth in the 1988 Accord; supervisory review of an institu~on抯 internal assessment process and capital adequacy; and effective use of disclosure to strengthen market discipline as a complement to supervisory efforts. The New Basel Capital Accord has renewed the theory and practices relating to modern financial markets and systems, and the Committee places particular emphasis on the prudential supervision of banking business in risk management, and to build an international banking system with safety and stability. According to the New Basel Capital Accord, it抯 necessary to put forward the strategy to promote sound supervisory standards and to solve problems on Hong Kong and Macau banking system.
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