The regulatory response In a sense, the major strengthening during the past few years of capital and liquidity requirements for internationally active banks – including the capital surcharge for banks of global systemic importance – has to date been the most important international regulatory response to the revealed vulnerabilities associated with large foreign banking operations.
Experience with a scarce supply of capital when the need is greatest, combined with the drop in property prices, may warrant an even greater margin. The launch of covered bonds means that credit institutions must restore the underlying collateral if house prices fall.