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Article: Capital retrenchment

05 October 2016 | Ricky Maloney

Capital is a serious issue, or at least its preservation is. The crisis of ‘07/’08 exposed the financial services industry to tremendous losses to the extent that companies went bust, were taken over or bailed out by government. Ensuing inquiries concluded that excessive levels of risk had been taken in search of reward and that the risk takers were inadequately protected in terms of capital and provided for in terms of liquidity.

Regulators sought to address this by enhancing capital requirements along with asset and liability management regulation through, among others, the leverage ratio, risk weighted assets  (RWA)A, liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). These add up to a sizeable capital preservation requirement, which places tremendous strain on a bank’s balance sheet and naturally steers lenders towards attributing capacity towards activities, and clients, that return sufficient revenue.

According to the Commodity Futures Trading Commission (CFTC)

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