Greater sensitivity of regulatory capital to risk has taken on increased significance as virtually all banking markets have become considerably more concentrated, with some companies - by their very size alone - posing the potential for systemic risk.
Also, the advanced approaches of Basel II better  BIS Review 35/2005  1  align regulatory capital to the risks presented by sophisticated financial instruments and to the complexity of large, internationally active financial institutions. The current Basel I framework is more focused on credit risk for balance sheet assets. But sophisticated financial institutions carry fewer of their potential exposures on their books.