The largest banks, operating in multiple product and geographic markets, simply could not operate without applying the new evolving principles in measuring, shifting, and managing their risks. Several implications follow. Harnessing large banks’ internal practices to the supervisory process implies that supervisors could use such cutting-edge risk measures to evaluate bank risk profiles and relate them to a truly risk-sensitive capital standard.
It also suggests that a bank’s adoption of best-practice risk measurement and management could be used as a supervisor-imposed prerequisite for the application of the new capital standard; setting such a prerequisite would accelerate the development and adoption of these new techniques, which counterparties are increasingly demanding in any event.