When a group of loans is assigned an internal capital requirement that is very low compared with the 8 percent regulatory standard, the bank has a strong incentive to restructure the positions to allow them to be reclassified into a lower regulatory risk category, by  BIS Review 17/1998  -3-  using securitization or other devices.
If the bank doesn’t do this, it cannot make a market rate of return on the regulatory capital of 8 percent on the loans. Regulatory arbitrage, from the perspective of proper resource allocation, can be a good thing.