Or, the bank could have a great model, but simply have a preference for risk that is unacceptable to regulators. Such a bank may be holding risky positions for which even its own model would call for more capital, if the bank were to adhere to a lower insolvency probability standard.
For such a bank, the regulatory “well-capitalized” designation may provide little comfort to supervisors or to the taxpayers we are supposed to protect. That is why, in this country, we have placed a great emphasis on the bank-by-bank supervisory process, as opposed to the formal capital regulations that apply to all banks.