The chief objective was to allocate capital resources as efficiently as possible whilst adhering to the minimum regulatory capital requirements. This principle is still the essence of bank management today. Yet the regulatory reforms introduced since the financial crisis have been forcing institutions to rethink their set-ups somewhat.
The problems facing the banking sector have shown that setting a minimum capital requirement that is based solely on risk-weighted criteria doesn’t go far enough to create sufficient resilience within the sector. Because risk-weighted capital requirements alone did not provide the necessary level of protection, additional safety nets were introduced as part of the Basel III package.