The first advantage of risk models doesn’t sound very encouraging, but it is nevertheless quite important. Their strength is that they get it less false than any other approach we have. For as long as we work on the approach of risk-based regulation, we have to somehow quantify risks; and there is no way we can do without educated guessing.
Any minimum capital requirement we impose on institutions requires more or less uncertain assumptions about the riskiness involved. This holds true not only for internal models, but also for standardised approaches to risks. Even the rather conservative regulatory risk weights of standardised approaches may result in overoptimistic capital charges – just look at sovereign bonds.