But this shouldn’t be an “either or” debate. The banking system ultimately needs a balanced approach to capital, which allows banks to efficiently function while also maintaining financial stability. Apply only one capital measure — it doesn’t matter which one — and the capital system will eventually flop.
Advocates for either the leverage ratio or risk-weighted measures often fail to appreciate this need for balance. Hence the regulatory debate too often consists of people on both sides embracing a one-chopstick approach.
December 20, 2017