Above all, capacity building, both in banks and the regulatory bodies is a serious challenge, especially with regard to adoption of the advanced approaches. We in India have initiated supervisory capacitybuilding measures to identify the gaps and to assess as well as quantify the extent of additional capital which may be required to be maintained by such banks.
The Federal Reserve is increasingly recognizing the need for supervisory and regulatory policies to be more “incentive-compatible,” in that they encourage sound risk management within an institution. Furthermore, supervisory and regulatory policies are placing increasing emphasis on minimizing burden by using internal risk measurement systems, and by reinforcing supervisory objectives through market forces.