This would give institutions less of an incentive to run their businesses in a risk-oriented manner. Incidentally, fewer than 50 banks use internal models in Germany – out of just under 1,900 institutions overall under our supervision. This means that the number of institutions affected by an output floor is relatively small, particularly important though those institutions undoubtedly are.
What is more, a robust line of defence is already in place today, in the shape of the leverage ratio, which sets additional minimum capital requirements to prevent internal models from being abused by those looking to understate the capital they need to set aside. This leverage ratio offers sound protection, and it improves on the current provisions under the European regulatory regime.