4  In addition to such basic factors, the large room to raise productivity, mainly in the nonmanufacturing sector, as well as the technological progress such as digitalization in recent years, have allowed firms to maintain their cautious stance toward raising prices despite an increase in labor costs.
By requiring strong internal standards as an entry criterion, the Basel II approach will ensure that these banks adopt structured, formal, empirically based methods of managing credit risk, which will lead to significantly improved risk-management capabilities at the very largest banks and other adopters. Capital requirements themselves will become more risk sensitive and less prone to artificial distortions.