The formation and continual evolution of global capital rules by the Basel Committee are often driven by a battle between dueling regulatory desires: simplicity versus risk sensitivity.

In the Basel II accords reached well before the crisis, risk sensitivity seemed to hold the upper hand. In developing the so-called Advanced Approaches — a component of Basel II allowing large banks to align their capital levels with their specific level of risk — regulators believed that the key to safe and sound banking was risk management, putting the onus on banks to measure their risk exposure and corresponding capital reserves.

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