More has been initiated in this area than is generally acknowledged. At the beginning of this year, the Basel III capital rules became effective in Europe, which will gradually improve the quantity and quality of banks’ capital.
All of us are still adjusting to this change and its implications. It is widely held that risk was under-priced for some years before then. That is to say, investors demanded very little risk compensation in their expected returns – perhaps in some cases because they didn’t understand the risks.