Given the scope of likely ultimate losses from structured products alone, it would take an enormous amount of capital to reduce average leverage ratios to Canadian levels. Bank of Canada research estimates that U.S., U.K. and European banks would need to raise a combined $ trillion to bring their leverage ratios down to Canadian levels.
These capital needs will rise linearly with any recession-induced writedowns. In this environment, banks are inclined to hoard capital, rather than deploy it. In a world with guarantees, liquidity and funding support, regulators should not reinforce this tendency. 6  M. Carney, "Building Continuous Markets" (Speech to the Canada-United Kingdom Chamber of Commerce, London, England, 19 November 2008).