2. The Basle Committee's primary concern in this area is to see that supervisors receive sufficient information to assess adequately banks' derivatives activities and the related risks. Reporting is the foundation for their on-going analysis of the financial condition of banks as well as the basis for comparative analyses. It consists basically of quantitative information gathered through routine reports, examination and/or external audit. Such reports also need to be supplemented by qualitative information. The central focus of the Committee's effort will therefore be to determine what information supervisors might need in order to make an adequate assessment of banks' derivatives activities and the risks involved in these activities. Recognising the need to minimise the frequency of changes to supervisory reporting requirements, the Committee is aiming to develop some basic principles and an analytical framework to guide banks' supervisory reporting. In doing so, it will also pay due regard to the framework for global market statistics under development by the Euro-currency Standing Committee of G-10 central banks to improve market transparency and to monitor the macro-prudential and macro-economic implications of derivatives markets (the so-called Brockmeijer report).

3. At the same time, it is necessary to review what types of information might usefully be subject to public disclosure.The public disclosure of financial accounts, capital positions, accounting practices and qualitative information about the use of derivatives permits more informed decisions by counterparties. In addition, it gives senior bank management a strong incentive to focus on the underlying risk management process. Inadequate disclosure reduces the transparency, not only of an individual firm's exposures and sources of income, but also of the financial system as a whole. This in turn has the effect of depriving market participants of information essential to their portfolio choices and may inhibit the authorities' ability to assess and respond to a troubled firm or to market stress.

4. With a view to encouraging improved public disclosure by financial intermediaries, the Bank for International Settlements published in September this year a discussion paper prepared by a task force of the Euro-currency Standing Committee which recommends a framework for the disclosure of market and credit risk based on firms' internal risk management and performance assessment systems (the so-called Fisher report). The Basle Committee believes that the recommendations of the Fisher report merit careful consideration by the financial community. Market participants clearly recognise the need for improved disclosure to permit more informed market decisions. Although bank supervisors in a number of countries have relatively little say in public disclosure, the Basle Committee encourages the industry to build on the initiatives announced by the Group of Thirty and the Institute of International Finance, among others, and it also welcomes the initiatives by national accounting bodies which are intended to improve disclosures related to derivatives, such as FASB Standard No. 119.

5. In this complex, rapidly changing environment, well thought out definitions of measurement techniques will be an important foundation for advancing public disclosure. The past work of the Basle Committee in the area of credit risk, notably in relation to the development of the concept of replacement cost, has provided a framework on which public disclosures of banks' credit exposures in their derivatives activities are frequently based. The Committee hopes that its work on market risk referred to in 11(a) above will prove to be an important element in the ongoing process of defining commonly accepted measures of market risk.

6. Accounting standards are a critical element for super-vision, public disclosure and market discipline. They provide the foundation for credible and comparable public financial statements and supervisory reports. Accurate and timely financial information provide the basis for decisions by management, counterparties, analysts, investors and supervisors. Although supervisors in general have no direct authority in the accounting area, the Committee believes that its individual members can frequently assist in the development of appropriate and consistent accounting standards and practices.