regulators

simplicity: Basel I was straightforward but oversimplified in assessing bank risks.

Risk Sensitivity: It didn't differentiate enough between varying levels of credit risk.
Inadequate Capital Requirements: Capital requirements didn't always match the actual risks faced by banks.
Limited Scope: Basel I mainly focused on credit risk and overlooked other risks like market and operational risks.
Inflexibility: It lacked flexibility for banks to adjust to changing risk environments or adopt advanced risk management techniques.
International Competitiveness: Concerns arose about how Basel I might affect the competitiveness of banks in different
jurisdictions.
Procyclicality: Its static nature could exacerbate economic cycles by encouraging risk-taking during booms.
Subjectivity: Internal credit ratings can be influenced by personal opinions, biases, and relationships, leading to inconsistent assessments.

Transparency: The methods used to rate borrowers are often kept secret, raising concerns about how accurate and reliable the ratings are.

Model Accuracy: There's a risk that the models used to predict credit risk may not capture all relevant factors, resulting in inaccurate ratings.

Data Issues: The quality of data used in these models can affect the reliability of the ratings.

Incentives: Financial institutions may have incentives to manipulate ratings to meet regulatory requirements or boost profits.

Regulatory Concerns: There's a risk that institutions may exploit weaknesses in rating systems to avoid regulatory scrutiny.

Economic Fluctuations: Ratings may be overly optimistic during good times and too cautious during downturns, leading to exaggerated lending cycles.

Reliance: Institutions might rely too heavily on these ratings, leading to inadequate risk management.

Operational Risks: System failures or errors can compromise the accuracy of ratings.

Regulatory Oversight: Regulators closely monitor these rating systems to ensure they're robust and fair.