As Chairman Bernanke has noted, a regulatory and supervisory system that is not in tune with the financial marketplace may increase the costs of regulation, stifle efficiency  2  BIS Review 89/2006  and innovation, and ultimately be less effective in mitigating the moral hazard problems associated with the federal safety net.
The advanced approaches of Basel II are much more risk sensitive, cover more areas of potential risk facing banking organizations, and provide better incentives for institutions to improve risk measurement and management. In addition, Basel II provides supervisors with a more conceptually consistent and more transparent framework for evaluating systemic risk in the banking system, particularly through credit cycles.