Such an approach would utilize the bank’s own internal models and risk management procedures to achieve supervisory goals, and give the bank a strong incentive to improve its risk management, since by doing so it could lower its pre-committed capital requirement and not increase the risk of paying a penalty.
BIS Review 34/1998  ˝  - 10 -  There are both benefits and difficulties with the approach that we are discussing with other supervisors both in the U.S. and abroad. It may well be that some form of an incentive compatible strategy might be linked with a regulatory minimum capital as a modification to the Basle standard for market risk.