Instead, we focus on two other dimensions of the system of financial regulation: (i) the number of regulatory constraints; and (ii) the extent of discretion around each individual regulatory rule. (i)  The Number of Regulatory Constraints  Although the post-crisis architecture places many regulatory constraints on banks, the key going-concern constraints are risk-weighted capital requirements (RWCR), the leverage ratio (LR), the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR). We assess these four constraints, recognising that other aspects of the regulatory system might also impose binding constraints on banks. For example, stress testing can be interpreted as holding banks to a different RWCR standard and a potentially different overall capital calibration (Greenwood et al (2017)). Some have recently contended that this multi-constraint system of financial regulation might be over-identified, with potentially distortionary implications for banks’ business models and behaviour. For example, Greenwood et al (2017) argue that it may be distortionary and unnecessary to have multiple, independent constraints on banks’ behaviour. And Cecchetti and Kashyap (2016) suggest that the LCR and NSFR are strongly overlapping in their impact, so that both may not be needed. These are well-reasoned critiques of the new regulatory framework whose messages should be analysed carefully when evaluating the new framework. They are just the sort of academic challenge to regulatory orthodoxy which was so missing in the pre-crisis period. Nonetheless, it is also worth reminding ourselves why and how such a multiple-constraint framework was arrived at in the first place.

Another element is to ensure banks have sufficient loss-absorbing liabilities which can be “bailed-in” in the event of failure, to prevent losses being shouldered by tax-payers. The Financial Stability Board has agreed standards for such Total Loss-Absorbing Capacity (TLAC) for global systemically-important banks (G-SIBs). These standards are to be phased-in over coming years, to reach a minimum level of 16% from 2019, and 18% from 2022, of the resolution group’s risk-weighted assets, as well as 6% and 6.75% on a leverage exposure basis, respectively. Macroprudential Reform  These new or augmented microprudential standards have been supplemented with a set of new macroprudential measures. These focus on safeguarding the stability of the financial system as a whole (Tucker (2009), Bank of England (2009, 2011)). The most significant of these reforms have focused on three areas: macroprudential capital buffers; stress-testing; and shadow banks. Historically, capital standards have been static requirements. As part of Basel III, a new time-varying component of banks’ capital was added – the counter-cyclical capital buffer (CCyB). This recognises that 4  And a number of countries, including the UK, introduced leverage ratio capital requirements in the aftermath of the crisis. 5  For LCR, see BCBS (2013a): http://www.bis.org/publ/bcbs238.pdf; for NSFR, see BCBS (2014b): http://www.bis.org/bcbs/publ/d295.htm 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  risks to the financial system vary over the credit cycle, typically being highest at its peak and lowest at its trough.