Much depends on the quality of the models; much depends on the data and the assumptions that feed into those models; and much depends on supervisors’ capacity to act. If there are errors along the way, banks might end up undercapitalised and vulnerable.
This, in turn, might lead markets to question the reliability of risk-based capital requirements in general, which would undermine trust in banks more generally. Therefore we need to balance risk sensitivity with some safeguards. And this is exactly what we aim to do with Basel III. It preserves risk sensitivity. It retains internal models for most asset classes.