This paper examines how banks’ asset risk changes when banks apply regulatory requirements at a business level lower than the group level in their internal capital allocation process. We develop a theoretical model and calibrate it to UK banks. We find that the practice of applying regulatory requirements at the lower business level may disproportionately affect some low-risk banking services, such as repurchase agreements, as banks reduce their investments in those activities to a larger degree. We also find that this impact differs across bank business models. Our paper offers an explanation of the mechanism behind the reduction of repo intermediation reported in banks not bound by the leverage ratio requirement.