As we near the completion of this journey, I’d like to recap why we chose to propose the Building Block Approach, which adjusts and aggregates existing legal-entity capital requirements to produce an enterprise-wide capital requirement. The BBA is meant to address one of our biggest challenges in supervising companies that engage in both banking and insurance operations, which is how different these businesses are.
No single, uniform approach to capital regulation is appropriate for companies in both sectors. The banking capital framework would not appropriately assess the capitalization of insurers. It is primarily based on risk-weighted assets. This framework would not capture many of insurers’ liability risks, such as from natural catastrophes. Nor would any existing insurance capital rule appropriately assess the risks of a bank.