The practice of high risk assets on a banks books while removing low risk assets with the same capital requirement is known as regulatory arbitrage.
What is regulatory arbitrage ?
- Using more advantageous rules in one country to get around less favorable regulations in another is a practice known as regulatory arbitrage.
- Due to the fact that it utilizes legal loopholes, this approach is frequently regarded legal yet unethical.
- When certain activities or positions within a conglomerate are moved, it is referred to as "supervisory arbitrage." This may be done to avoid being subjected to one set of supervisors' relatively stricter prudential oversight or to completely avoid it.
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