I’m not talking about anything new here: If you look at the criteria for rating capital adequacy under the banking agencies’ CAMELS rating system for banks6, and under the Federal Reserve’s RFI rating system for bank holding companies, you will actually see very few references to minimum regulatory capital.7 Instead, the focus is on maintaining capital that is commensurate with the overall risk profile of the bank, not just credit risk.
This requires both management and the supervisor to have an effective understanding of the banking organization’s risk profile, which is central to our supervisory program.