Capital efficiency: Basel II prescriptions have ushered in a transition from the traditional regulatory measure of capital adequacy to an evaluation of whether a bank has found the most efficient use of its capital to support its business i.e., a transition from capital adequacy to capital efficiency.
Equally, the envelope can be recalibrated if required to maintain favourable financing conditions and help counter the negative pandemic shock to the path of inflation. The focus on duration and preservation combines two mutually reinforcing benefits. First, the longer duration of the PEPP itself has a stabilising impact on financial markets.