Recent supervisory guidance stressed that banks should set a target for capital that should be appropriately aligned with the risk profile and risk-management capability of the bank. Bank supervisors will assess the adequacy of this target level of capital in their examinations of banks, and banks should defend their target level of capital to the market.
This approach will give further impetus to the advances already well under way in the banking industry to refine the measurement of risk and the allocation of capital using internal risk ratings and internal models.