The skeptics argue that the cost of developing and using the advanced measurement approach and the associated capital charges divert resources away from actual investment in risk-reducing systems and better backup systems. As I will discuss more fully, Basel II, without doubt, is costly; but the final judgment for any expenditure must rest on the balance between costs and benefits.
We and, as noted, many banks believe that the AMA is critical for the kind of formal analysis that focuses banks' attentions on the operational risks they face. We are also convinced that the explicit Pillar I capital charge creates incentives for them to reduce these risks while ensuring that minimum capital is allocated to absorb the remaining risk.