Revisiting the regulatory capital stack

Highlights

• The post-Great Financial Crisis regulatory reforms have directly contributed to a more resilient financial system and supported sustainable growth, but some concrete aspects can be improved.
• The complexity of the current capital framework and limitations in the loss-absorbing capacity of some of its components can limit the effectiveness of bank regulation in achieving core microprudential, macroprudential and resolution objectives.
• This paper discusses conceptually the capital stack – its components and their distinct roles. It then suggests, at a technical level, how to simplify the current capital framework and how to enhance its effectiveness in generating loss-absorbing resources while maintaining its stringency.
• Ultimately, the aim of this paper is to provide an analytical reference for the ongoing debate on how to improve the effectiveness and reduce the complexity of the current regulatory capital stack.

The views expressed in this publication are those of the authors and not necessarily those of the BIS.