These models link capital to risk-taking and help banking organizations compare risks and returns across diverse business lines and locations. Since under the RBS supervisors, essentially, rely on the inputs provided by banks’ risk management systems, the RBS can only be as effective as banks’ risk management systems.
This means that decisions to raise the rate or to pause and assess the impact of past rate increases will depend on incoming data and our judgments about the outlook for inflation. We are trying to balance the risks of over- and under-tightening monetary policy.