Completing the agenda on minimum capital and liquidity standards Strong capital and liquidity standards are central to these goals and to the overall reform agenda for financial regulation. The crisis showed that liquidity problems can be an independent source of severe stress, perhaps even for firms that might otherwise have remained solvent.
But it also confirmed that capital standards themselves had been wholly inadequate in a number of respects: Required capital levels were much too low, particularly trading book capital requirements. In evaluating the condition of financial firms at the height of the crisis, markets focused on common equity ratios and virtually ignored the Tier 1 ratio enshrined by Basel I and Basel II.