Prudential Regulation

With the adoption of complex, conservative, prudential regulatory requirements, banks are now subject to multiple risk-based capital ratios, leverage ratios, capital buffers and Total Loss-Absorbing Capital (TLAC) ratios.

As a result, banks hold excessive levels of capital and liquidity that are increasingly disconnected from the level of risk they incur. Although these levels have undoubtedly increased resiliency, they come at a cost: the more capital required, the less deployed into the economy.

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