Build the Map Before You Shorten the Rulebook

This series began with a deceptively simple question: should small banks receive a smaller rulebook? The evidence supports a more demanding answer. Proportional bank regulation works only when authorities identify which institutions are genuinely simple and resilient, decide which risks a proposed simplification will measure less directly, and attach safeguards and transition rules that keep the result conservative. The practical judgment is whether a regime is well mapped—not whether it contains fewer pages.

That judgment can now be made across the whole regulatory package. Eligibility, capital, liquidity, concentration, supervisory reporting, market disclosure and lifecycle rules are separate control functions, but they interact. The six-jurisdiction BIS comparison shows several coherent ways to connect them. The U.S. Community Bank Leverage Ratio (CBLR) shows how the connection appears in a live rule change. Neither source supports a universal template or a performance verdict, so the final framework must preserve both the design choices and the evidence limits.

The complete map has six decisions

A proportional regime can be judged through a sequence of six decisions. The sequence is not a mandatory legal procedure. It is a way to expose the assumptions that a short rulebook can hide.

First, define the eligible universe. Start with the banks for which proportionality is being considered, but do not stop at an asset-size line. Size establishes a candidate population because it is observable and administrable. Complexity, domestic scope and risk profile determine whether the candidate actually fits the simplification. The relevant proxies may include trading activity, derivatives, internal models, cross-border exposures, off-balance-sheet positions, leverage, liquidity and supervisory condition.

The choice of threshold must also account for time. A fixed limit is easier to explain but can become stale as the economy and banking system grow. A GDP-linked limit can remain closer to domestic scale but is more complex to administer. A multi-year average can smooth temporary fluctuations while still requiring a growing bank to prepare for departure. These are different ways to manage the same problem: the eligibility boundary must not admit an institution whose size or trajectory makes the simplified regime inappropriate.

Second, map the risks that the relief would measure less directly. A capital simplification may omit distinctions among asset risks or market activities. A liquidity exemption may reduce standardized information about short-term outflows or stable funding. A shorter reporting template may make it harder for supervisors to observe a change in complexity. A narrower public disclosure regime may give investors less information. Naming the omitted risk prevents the word “simplification” from becoming a substitute for analysis.

Third, choose the relief by control function. The authority may replace risk-based capital with a higher leverage ratio, simplify selected risk-based components, or leave capital unchanged and reduce reporting or disclosure instead. It may retain a full liquidity framework, use a proxy, or exempt eligible banks from a quantitative ratio while relying more on supervision. It may preserve large-exposure limits even while simplifying calculations elsewhere. The choice should follow the risk and burden being addressed, not a general preference for either rules or discretion.

Fourth, add the matched safeguard. If the simplified capital measure does not capture market risk in detail, eligibility can limit trading activity. If a leverage denominator excludes certain exposures, an activity or exposure limit can narrow the gap. If a liquidity calculation is exempted, funding conditions or a satisfactory supervisory assessment can limit the exemption. If several buffers become one, a higher total capital requirement can preserve a resilience objective. A safeguard is credible only when the reader can explain which omitted risk it addresses.

Fifth, govern entry, breach and exit. Eligibility is a state that can change. A bank can grow, alter its activities, weaken its liquidity or become more connected to a wider group.