The key elements of the new framework include: (i)  a new definition of regulatory capital that will improve both the quality and consistency of the capital base,  (ii)  the introduction of capital conservation buffer requirements that would constitute an additional layer of protection for banks, especially in periods of excessive credit growth,  (iii)  the strengthening of the risk coverage of the capital framework that would represent a revision of the prudential rules on securitisation and trading book activities as well as the counterparty credit risk framework,  (iv)  the planned introduction of a non-risk based leverage ratio that would serve as a supplementary measure to the risk-based requirements to contain the build-up of  BIS central bankers’ speeches  3  excessive leverage and address model risks associated with the risk-based capital framework, and (v)  the development of a liquidity risk framework that would aim at improving the resilience to liquidity shocks of the banks.
Capital adequacy The emphasis on adequate capital has helped a great deal in the past but cannot in itself ensure solvency and stability of the financial system in all situations. However, there are some inherent rigidities which fail to cover many of the risks that banks assume in their business operations.