The second charge against Basel II was that even as it made capital regulation more risk sensitive, it did not bring in corresponding changes in the definition and composition of regulatory capital to reflect the changing market dynamics.
The market risk models failed, in particular, to factor in the risk from the complex derivative products that were coming on to the market in a big way. These models demanded less capital against  BIS central bankers’ speeches  1  trading book exposures on the premise that trading book exposures could be readily sold, and positions rapidly unwound.