The rationale is that the market itself contains disciplinary mechanisms that can reinforce the efforts of supervisors by rewarding banks that manage risk effectively and penalizing those whose risk management is inept or imprudent through their patronage or non-patronage. Basel II and risk management As we move into implementation of Basel II, industry reaction is both revealing and interesting.
On one hand, the commotion it is causing with banks doubling their efforts in improving their risk management systems to meet the requirements of the advanced approaches is a very positive development as far as the BSP is concerned.