BIS Review 29/2008  1  Understanding the linkage between risk concentrations and capital is especially important, since the concentration of risk of a given portfolio markedly affects the amount of capital that should be held against it. Heavy concentrations can produce so-called fat tails in a loss distribution, meaning that considerably higher capital levels are required to support the risk taken.
If one underestimates the amount of capital needed to be held against risk concentrations and/or the extent of the concentrations themselves, then a banker would realize that the initial level of capital was not sufficient and that remedial actions would need to be taken.