the bank has a strong incentive to restructure the positions to allow them to be reclassified into a lower regulatory risk category, by using securitization or other devices. if the bank doesn ’ t do this, it cannot make a market rate of return on the regulatory capital of 8 percent on the loans. regulatory arbitrage, from the perspective of proper resource allocation, can be a good thing. if there were no way for the bank to avoid the uneconomically high regulatory requirement, it would need eventually to exit its low risk businesses because of insufficient returns to equity. in the long run, this would serve no purpose other than causing the regulated entity to shrink in size relative to its unregulated competitor. at the extreme, the one - size - fits - all capital standard, if there were no arbitrage safety valve, would cause the bank to engage in only those activities for which the economic capital requirement is greater than the 8 percent regulatory standard. that is, the regulatory standard would induce risk - taking - - perhaps excessive risk - taking. while regulatory arbitrage can be useful in negating improperly high regulatory capital requirements, it can also be used to mask the true riskiness of the bank. in the united states, for example, the top 50 bank holding companies have a mean total risk - based capital ratio of 12. 1 percent. the standard deviation of this ratio across the 50 institutions is only 0. 8 percent. in other words, everyone seems to be holding about the same amount of capital. indeed, since a bank is declared to be “ well - capitalized ” when its total risk - based capital ratio is over 10 percent, it is not surprising that we see no top - 50 banking company with its ratio less than 10 percent. but do all these banks have equally low insolvency probabilities? one simply can not tell much of anything by looking at capital ratios. it is perfectly possible that a bank may hold 12 percent capital when a more carefully constructed internal risk model would call for holding 15 percent, or even 18 percent, capital to meet the bank ’ s internal insolvency standard. or, the bank could have a great model, but simply have a preference for risk that is unacceptable to regulators. such a bank may be holding risky positions for which even its own model would call for more capital, if the bank were to adhere to a lower insolvency probability standard. for such a bank

receive deposits, pay bills, and accrue savings. they also need access to credit to tide them over before their next cash infusion arrives. they may be coming up short paying their rent, their mortgage payment, an emergency medical expense, or an unexpected car repair. they may want access to a savings vehicle that, down the road, will help them pay for these items and for education or further training, or to start a business. and many want some form of non - cash payment method, such as a credit or debit card, to conduct transactions that are difficult or impossible to conduct using cash. products and services that serve these core financial needs are not consistently available at affordable rates to all americans. those with low and moderate incomes may have insufficient income or assets to meet the relatively high requirements of banks. americans without jobs, or with jobs that have slow wage growth, have little, if any, opportunity to establish a credit history that facilitates access to financial services. others, especially in the wake of a recession that put many people out of work and homes, may have dents on their credit records that inhibit their ability to borrow on affordable terms. how the recession undermined financial inclusion the economic crisis has undermined financial inclusion for many americans. low - and moderate - income families entered the recession with little financial buffer against the adverse effects of wage cuts, job loss, and drops in home values. according to the 2007 survey of consumer finances ( scf ), home equity accounted for 75 percent of total assets for low - and moderate - income families, which made them extremely vulnerable to the eventual housing market collapse. sure enough, families in the bottom fifth of the income distribution saw an 18 percent drop in median net worth between 2007 and 2009, going from $ 8, 100 in 2007 to $ 6, 600 by 2009. 3, 4 families in the middle of the income distribution fared bureau of labor statistics. “ the employment situation – may 2011. ” ibid. bucks, brian k., arthur b. kennickell, traci l. mach and kevin b. moore. 2009. “ changes in u. s. family finances from 2004 to 2007 : evidence from the survey of consumer finances, ” federal reserve bulletin, v. 95, pp. a1 – a55. bis central bankers ’ speeches even worse, experiencing a 21 percent decline in the value of their assets, the highest of any group during the same period. combined with widespread unemployment, housing and