Such delays increase the likelihood that the underlying problems will not be addressed soon enough and will likely grow larger over time. To be sure, it may well be desirable to avoid an excessively conservative calibration of the risk sensitivity of a regulatory capital regime to minimize the potential for over-response in the capital ratio, relative to some regulatory threshold, when risk evaluations change.
Overreaction can be as much of a problem as underreaction. The Basel Committee has attempted to avoid such difficulties by selecting, whenever possible, parameters that recognize factors that reduce risk exposures and by adjusting capital charges accordingly.