Against that background, reviewing the Committee's thinking that led to the proposed treatment of operational risk might be useful. Under the current, Basel I capital regime, capital requirements on credit exposures are set high enough to cover implicitly operational risk, an approach that has helped to undermine Basel I by adding to the wedge between regulatory and market evaluations of lower-risk exposures.
If operational risk were subject not to an explicit pillar I capital charge under Basel II but rather to supervisory review under pillar II, capital requirements for credit risk in pillar I would have to be either (1) kept unchanged or (2) treated as they are under Basel I with a safety margin built on top of the credit-risk requirement to cover operational-risk exposures.