Such an approach recognises that it is bank directors and management that have the strongest interest and ability to measure risk accurately, and that an internally-generated measure of risk should be better than one derived from that imposed by supervisors. The ongoing challenge to regulators is to ensure that incentive structures are conducive to this outcome.
My own perspective is that a paradigm shift in supervision towards harnessing market forces will make a more significant contribution to promoting sound and efficient financial systems than simply changing regulatory structures within the same external regulation paradigm.