The reliance on the market to assess the riskiness of banks would lead to increased focus on transparency and market disclosure, critical information describing the risk profile, capital structure and capital adequacy. Besides making banks more accountable and responsive to better-informed investors, these processes enable banks to strike the right balance between risks and rewards and to improve the access to markets.
Improvements in market discipline also call for greater coordination between banks and regulators. Improving risk management systems Basel II has brought into focus the need for a more comprehensive risk management framework to deal with various risks, including credit and market risk and their inter-linkages. Banks in India are also moving from the individual silo system to an enterprise-wide risk management system.