If a special “capital charge” has to be imposed in proportion to the risk posed by a systemically important financial institution to the entire financial system, then developing the matrix for institution specific capital charge would be a real challenge for the regulators.
A perfect balance cannot be our objective as it would be impossible to deliver. But let’s start from the beginning. I remember the often passionate discussion in the Basel Committee on Banking Supervision (BCBS) about balancing risk sensitivity and simplicity. Not all of us believed in risk sensitivity as a basis for capital requirements.