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Capital under pressure - Redefining bank optimization in new risk cycle
As Basel III reforms tighten and macro volatility grows, banks are rethinking how they deploy capital. Regulatory buffers are becoming strategic tools, forcing executives to balance resilience with profitability. From RWA optimization to stress testing and hybrid capital instruments, boards now treat capital not as compliance but as the key to long-term growth and adaptability in turbulent markets.
Nov 04, 2025
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CeFPro Staff Writer, , CeFPro
Tags:
ALM, Treasury and Liquidity Risk
The views and opinions expressed in this content are those of the thought leader as an individual and are not attributed to CeFPro or any other organization
- Banks must reframe capital as a dynamic constraint shaping strategy not just a regulatory buffer
- Regulatory reform and Basel III finalisation force review of IRB versus standardised models
- Consultancy advises focus on RWA accuracy, capital alignment with business, and instrument design
- Advanced modelling may no longer deliver capital benefit given output-floor constraints
- Capital planning increasingly embedded in stress testing, scenario analysis and product approval
- Surplus headroom above regulatory minimum is critical to flexibility and crisis readiness
- Empirical studies show higher capital can drive riskier asset composition if governance weak
- Boards must oversee capital strategy, risk appetite and business model coherently
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