Best-practice banks in the United States have already begun the process of risk-categorizing their portfolios and using historical data to establish internal capital allocations, loan loss reserving, and pricing. Our examiners have been instructed to begin evaluating these systems and urging their improvement.
We have also begun work on how best to tie the required minimum capital regulation for an individual large bank directly into its own internal risk-profiling system, rather than to one or even multiple externally defined “risk buckets”. This isn’t going to be easy. The US regulators and our colleagues abroad are hard at work on how to do it.