It is, moreover, a model for regulation based on the introduction of the incentives needed to stimulate prudent and responsible action by the institutions. These incentives will promote the establishment of appropriate risk measurement and management systems, such that the better they are, the lower the capital requirements applied to the institutions in recognition of this superiority. The desire to offer alternatives and incentives is clear in the design of the Accord. For example, it proposes that institutions should have various alternatives for calculating their regulatory capital, ranging from the simplest possibilities based on the use of external rating systems, to other more complex ones based on internal rating systems designed by the institutions themselves. The requirements to gain access to the most advanced methodologies are, undoubtedly, considerably more demanding. That said, it is up to the institutions themselves to decide, on the basis of their specific operations and of their needs in general, which methodology they wish to apply. In fact, it is not clear that small and medium-sized institutions should opt, at least initially, to use the most advanced approaches. In particular, the Banco de España foresees that, both on account of the type of operations carried out by Spanish institutions and owing to the minimum requirements for access to the different methodologies, the number of those adopting the most sophisticated methods (i.e. the advanced IRS approach) will be limited and will be the result of a gradual process over time.
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