This perspective results in supervisory authorities reacting rather than specifying a given level of capital for the institution in a preventive manner. Without wishing to pre-empt this afternoon’s discussion, I perceive the danger of an institution accepting additional risks if there is a threat of the pre-commitment being infringed and hence of regulatory sanctions.
If there is a danger of the amount of capital being exceeded, some traders will attempt to change course abruptly in accordance with the dictum “If you are in trouble, double”. A key problem also consists in finding a consistent penalising mechanism.