Central Banking

Fixing the ‘perverse incentives’ in the SLR

Neural network

Bank capital requirements now have tranches that cover a variety of risks and include buffers and add-ons in respect of cyclicality and leverage among other types of risk. Overall, the coverage and incentives have seemed to serve their intended purpose of improving financial stability – and, coincidentally, transparency.

However, at least one aspect of the bank capital requirements has proven to be controversial, and appears to operate contrary to its policy and risk-reducing objectives.

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