In this context, a system of consistent regulatory practices has to be aligned with the way banks are run and managed and, in this sense, Basel II creates the scope for regulators to adapt over time to innovations taking place in the banks and the markets.
Unless they apprehend fully concepts underlying processes for the estimation of Probability of Default (PD), Loss given Default (LGD), Exposure at Default (EAD) and the parameters employed to calculate risk of loss based on these concepts, inadequacies will surface up since the supervisory validation process will not be up to the mark in such a case.