ANZ is moving away from high risk and highly capital intensive activities in response to new regulatory requirements.ANZ chief executive, Mike Smith, said yesterday that the impact of new Basel III regulatory reforms was becoming clearer and the bank was adjusting its business model in response.Speaking at the release of the bank's 2011/12 results yesterday, Smith said: "We have to hold more capital and therefore there is more focus on the management of that capital."We have already made some early decisions about this, with the sale of our stake in Visa, disposal of Origin [a third-party mortgage business] and our non-strategic stake in Sacombank [in Vietnam]."ANZ's chief financial officer, Shayne Elliott, said the bank was now "more proactive" on capital allocation across the business. Smith said: "No bank in the world managed it very well pre-crisis. Top-line growth covered that up." "In our lending, we are going to focus on lower-risk, less capital intensive businesses, such as mortgages in Australia, and more trade and working capital finance outside Australia."ANZ has roughly doubled its capital to A$40 billion in the five years since the onset of the financial crisis. In its international and institutional banking division, the bank will be less dependent on long-term lending. Smith said: "The pressure is on the asset side. It is going to be more of a trade book. Forex looks more attractive."Elliott said that in institutional banking "we are emphasising shorter duration, trade-based lending over the long term. That comes at the expense of margins. But, on a risk adjusted basis, that's a better business for us to be in. It's more aligned with our strategy. So it will mean that margins come in, and we expect that."When people talk about [our] super regional [strategy], it's very easy to focus purely on the geographic aspect, but super regional is more than that. It's about a focus on the intermediation of trade capital wealth flows in the region and the diversification benefits that come with it. It also naturally aligns us with a faster growing sector of the economy and from our perspective [that is] is lower risk."Analysts questioned whether this shift would exacerbate the decline in the bank's return on equity, which fell from 15.3 per cent in 2010/11 to 14.6 per cent in the year to September (down from 16.2 per cent to 15.6 per cent on an underlying basis).Elliott said: "Trade used to be single digit ROE on a standalone basis, [when] just looking at trade assets. Today, it's in the mid-teens, and that's because we're getting benefits to scale. The business has grown, revenue's grown and costs have actually been held flat."The other benefit that you don't see is there is cross-sell. From a trade, starting a relationship is much bigger than in a traditional long-term lending business."An area where the bank expects to do less business from now on is in project finance. Smith said: "Project finance is very difficult to do under Basel III. It requires very intensive use of