America’s banks are more exposed to a downturn than they appear

After the global financial crisis of 2007-09, lawmakers in America and Europe penned new rules to govern finance. These had two aims. First, to force banks to hold more capital against their assets, so as to cushion losses. Second, to curb the risky activities in which banks had indulged. Some, such as proprietary trading, were prohibited; others were simply discouraged, sometimes by assigning higher “risk weights” to spicier assets. Both aims are measured by “common equity tier 1 capital” or cet1, which divides bank equity by asset value, adjusted for risk weights.