There is, therefore, a practical limit to the number of institutions that we – and, I would argue, other countries – can effectively supervise under the IRB approaches. Under the proposal, we have attempted to provide incentives for banks to migrate over time from the standardized to the foundation and, then, advanced IRB approaches.
If competitive forces encourage too many banks to choose for the IRB approaches, then more careful attention would have to be paid to the risk weights under the standardized approach and to the associated incentives built into the IRB approaches.