For those comparatively few banking organizations whose scale, complexity and diversity warrant a more sophisticated approach to capital adequacy, the Basel Committee has proposed another track that, at least initially, would seek to link regulatory capital requirements to the banks’ internal risk ratings that I discussed earlier.
Under this approach, the risk-weight assigned to a particular credit position would be based on the internal risk rating assigned by the bank holding that instrument. Regulatory staffs in the United States and other countries are currently attempting to work out the basic architecture of such an approach.