Work is underway to develop an approach that would allow banks to retain more capital in good economic times and to allow this excess or buffer to be reduced as the economic cycle worsens. The goal is to have a level of capital that is sufficient to support lending, while maintaining safety and soundness.
The challenge is to develop an appropriate target for this excess amount and to identify the right economic trigger for determining when this excess should be reduced. This is a delicate balance. In addition, the elements that we consider to be tier 1 capital in our current framework need to be revised.