Basel Committee surveys market on interactions of different regulations

Stronger regulatory requirements have prompted banks to steadily increase their capital since the financial crisis. To understand how banks would adjust to higher capital requirements if they did not meet them, we asked them how they would reach a target leverage ratio requirement calibrated at 3%, with an additional 1% G-SIB add-on. The answers suggest that capital increases, including retained earnings, and factors summed up under the “other” category account for the bulk of the adjustment (22% and 31%, respectively). Each additional factor contributes less than 10%.

Irrespective of whether their LCR was below or above 100%, banks placed large weights on the same four contributing factors to reaching the target management liquidity buffer: increasing high-quality liquid assets (HQLA), increasing retail deposits, increasing long-term debt issuance and decreasing short- term unstable funding. These factors re-appear when banks’ answers are organised by their RoA.

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