But risk-weighting also means that there are potentially two ways in which sufficiently high capital ratios may come about: high equity or low risk weights. If meeting the requirements is based on the latter, the capital buffer might prove to be a mirage when push comes to shove.
This is why we have to supplement the risk-weighted approach with an unweighted capital ratio: the leverage ratio. From this year on, banks are required to disclose the leverage ratio. But transparency alone is not enough. Now, we need to make sure that after a final calibration, the leverage ratio becomes a binding Pillar 1 requirement by 2018.