This possibility raises a very important practical issue: How many banks will believe that they must operate under an IRB approach to remain competitive? It will take considerable supervisory resources to validate banks' internal methodologies and to monitor their compliance with sound practices under the IRB approach on an ongoing basis.
There is, therefore, a practical limit to the number of institutions that we – and, I would argue, other countries – can effectively supervise under the IRB approaches. Under the proposal, we have attempted to provide incentives for banks to migrate over time from the standardized to the foundation and, then, advanced IRB approaches.