In the emerging consensus view on reforming bank capital requirements, the need for increased regulatory capital and some form of crisis insurance are beyond doubt, as has been established in Caballero (2009). The present paper contributes to the ongoing debate concerning the proper composition of capital buffers, in which banks favor sub-ordinate debt over equity. Subordinated debt recommends itself based on its ability to enhance market discipline in interbank funding markets. We find that this measure also helps towards resolving perverse incentives in the risk management framework based on VaR, since the reliance on subordinated debt helps in putting a cap on loss given default of senior claims of failing banks, hence emulating simultaneously the theoretically sound risk measure of expected shortfall and a version of a joint stress test and scenario analysis. To arrive at a benchmark to compare the viability of capital buffers, we propose to use a financier of last resort in a dual manner: as a theoretical entity to arrive at an archimedean point on which comparisons concerning capital adequacy can be based, and in practice in a certain weakened form of a market maker of last resort, extending the function of exchanges and of central clearing of derivatives. Based on these constructions and arguments, we demonstrate that it is optimal to increase capital requirements mainly based on sub-ordinate bank debt against the alternative of purely increasing equity buffers and staying within the VaR risk paradigm. We provide further support for this conclusion by showing its compatibility with the basic outcomes of economic capital models capable of capturing counterparty risk and contagion, leading to phase transitions and bimodal loss distributions.