Irregular or over-aggressive conduct exposes intermediaries to legal and reputational risks, which need to be addressed by prudential supervision. The management of both old and new banking risks is now set to reap the benefits of the substantial investments that have been made by banks and regulatory authorities to bring the Basel Accord into operation.
The new regime creates incentives for banks to direct their choices towards the objectives of prudential supervision, enhances the effectiveness of the rules and reduces their distortionary effects under a highly innovative approach. Based on the risk management techniques of the most sophisticated banks, it will promote competition and significantly improve the quality of most banks’ operations.