Note that this last discussion has moved us toward consideration of macroprudential reasons for capital requirements – specifically, for higher requirements aimed at reducing the probability of insolvency below that which would be warranted if the sole regulatory aim were to protect customers, depositors, or even a government deposit insurance fund.
As has been much discussed in recent years, pre-crisis financial regulatory regimes had substantially undervalued systemwide considerations. Indeed, in the first instance the crisis spread not only because of the direct effects engendered by the insolvency of individual firms, but also because of the dramatic contraction of funding available throughout markets for widely held assets such as mortgage-backed securities.