Nearly all institutions hold capital in excess of the minimum required regulatory ratios, in many cases several percentage points above, to satisfy rating agencies, debtholders and shareholders, and counterparties in the market. By the same token, pricing in the banking industry is not driven by regulatory capital, but rather, as most would intuitively assume, by supply and demand and business decisions made by bankers.
But we think regulatory capital can act as a useful gauge of risk-taking, even though it would not be the deciding factor in business decisions.