The banks know what awaits them; they can be confident about the regulatory framework, and can plan ahead and support the real economy. But does Basel III deliver what was promised? Does it, on the one hand, create rules which are sufficiently risk-sensitive to set the right incentives for banks?
And does it, on the other hand, create rules which are simple enough to decrease model risk? Banks are not enchanted by Basel III. Many of them claim that it throws risk sensitivity overboard and penalises low risk exposures. Are these claims justified? Well, we have not thrown risk sensitivity overboard. And why would we?