Inevitably, therefore, we as supervisors are recognizing this reality and have been placing greater emphasis on how well internal risk models are functioning and whether the risk thus measured is being appropriately managed and offset with reasonable hedges. We are also scrutinizing how well an institution is able to tie its risk exposures to internal capital needs.
We have a long way to go, but this is where competitive pressures and the underlying economic forces are pushing both financial intermediaries and the supervisory system.