Some Difficulties with the Pre-commitment Approach

The Pre-commitment approach (PCA) raises several concerns from a supervisor''s perspective: the system of penalties which is envisaged is not efficient, the PCA may add to the financial instability, the supervisors are supposed to be on the side line contrary to their role to promote a sound financial system. More than a new approach to market risks, supervisors have now to devote their efforts to review the credit risk regulations.