Capital as the Last Defense vs the First Defense
Abstract
The financial industry is the only major industry that employs capital as the first and the only tangible defense against exposure from risk. Employing capital as the last defense has far-reaching implications for capital adequacy as well as for revenue models. Building strong defenses—such as sustainability enhancement contingency programs—in front of capital can blunt the impact of shocks and hits, reduce pressure on capital, and, thus, increase the protective value of capital. Such programs should not be counted as capital in a financial sense. And, similar to BCPs, such programs require up-front investments, and when triggered they will have significant costs and impact ...
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