In my view, a full models regime could not, over the planning period for Basel II, produce capital charges that would be sufficiently comparable for a regulatory capital standard. Specifically, determinations of portfolio correlation effects tend to be as much art as science; and their subjectivity makes them difficult, if not impossible, to validate credibly.
3  On these points, see for example Geithner, T (2006), ‘Hedge Funds and Derivatives and Their Implications for the Financial System’, Remarks at the Distinguished Lecture 2006, Hong Kong, 15 September (available at <https://www.newyorkfed.org/newsevents/speeches/2006/gei060914.html>) and Stevens, G (2006), ‘Risks and the Financial System’, Remarks in response to Distinguished Lecture by Mr Timothy Geithner, Hong Kong, 15 September.