- Banks were encouraged to develop diversified capital structure globally as it was seen as a more efficient balance sheet and non optimal ROE
- High degree of leverage (Europe 40, Asia 14/15 (2008)
- Highly developed capital markets in the West
- Building up of a complex Tier II capital structure
- Balance Sheet Issues
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- Obsession with common tangible equity as purest form of solvency capital
- Continuous question marks on the underlying value of balance sheets
- Tier II as a supplementary form of capital doesn’t absorb losses so importance will weaken but remain in some form or another on regulators agenda (country dependent)
- Simplified Tier II Capital Structure
- Further capital erosion from a regulatory standpoint due to pro cyclicality standards even without increase in lending/losses
- Increasing regulatory risk and cost of compliance (more government intervention)
- P/L issues
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