Reliance on a bank’s own risk measurement and modeling process in determining regulatory capital standards also acknowledges that no single or specific technique is best for everyone. Each institution should tailor its risk measurement and management process to its own needs. While adhering to basic principles, each institution must determine for itself the proper incentives and techniques for managing its affairs.
No two banks or banking markets are identical in their operations, structure, or historical development. Permitting a range of compatible responses to similar situations encourages experimentation, innovation, and growth. Accommodating a certain level of flexibility is necessary for banks, and it is necessary for regulators, too.