The advanced approaches under Basel II, which include the advanced internal ratings-based approach (or A-IRB) for credit risk and the advanced measurement approaches (or AMA) for operational risk, offer particularly good improvements in terms of risk sensitivity, since they incorporate advanced risk-management processes already used today by best-practice institutions.
Indeed, the expected improvements in risk measurement and risk management form the core of our reasons for proposing Basel II in the United States. Its advanced approaches create a rational link between regulatory capital and risk management. Under these approaches, institutions would be required to adopt a set of quantitative risk-measurement and sophisticated risk-management procedures and processes.