Don't rely too heavily on capital-adequacy models

Supervisors should guard against placing undue reliance on the overall level of capital implied by economic capital models in assessing capital adequacy, a new paper from the Bank for International Settlements posits.

The research also recommends that a bank using the model in its dialogue with supervisors, should be able to demonstrate how the economic capital model has been integrated into the business decision-making process in order to assess its potential impact on the incentives

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