Key facts
- Jurisdictions with high risk density in risk-weighted asset calculations tend to have lower nominal capital requirements.
- The study examined 29 global systemically important banks (G-Sibs) across seven jurisdictions.
- Risk density is measured as risk-weighted assets divided by total assets.
A report by the Bank for International Settlements’ Financial Stability Institute (FSI) indicates an inverse relationship between risk density in the calculation of risk-weighted assets and nominal capital requirements. The study, which analyzed 29 global systemically important banks (G-Sibs) across seven jurisdictions, found that areas with higher risk density tend to impose lower nominal capital requirements.
Risk density is defined as risk-weighted assets divided by total assets. The report suggests that jurisdictions may be making a choice between implementing higher capital requirements or imposing model restrictions.