A key issue, which is particularly relevant in the current period of adjustment, is the ability of banks to use capital levels above the regulatory minimum during adverse conditions. What we have seen is that higher cushions above the regulatory minimum become a new de facto market requirement.
Indeed, banks’ efforts to raise new capital in the past year have been not just to meet regulatory minima but also to respond to the need to reassure markets. This is, at least in part, because of festering uncertainty over risk exposures, valuations and earnings prospects.