Every firm fears being the first to raise prices and suffer, as a consequence, an increase in its relative prices and a decline in market share. There are at least two problems with this explanation. First, we have to identify the source of the fundamental change in competitive pressure.
Allowing banks to calculate regulatory capital in any manner that they see fit would certainly maximize the flexibility of such calculations, but the results would not be comparable across banks and thus the value of the capital standard would be compromised.