Markets by Trading view

ESRB publishes report on the usability of banks’ capital buffers


The European Systemic Risk Board (ESRB) has today published a report on the usability of banks’ capital buffers. Macroprudential capital buffers were introduced in response to the global financial crisis to increase the resilience of banking systems against systemic risks. Unlike regulatory minimum requirements, banks should be able to draw down their buffers when losses need to be absorbed during times of stress and to replenish those buffers afterwards. Therefore, buffers should cushion against shocks and improve banks’ loss absorbing capacities. Buffers complement minimum requirements and are key macroprudential policy instruments.

The report concludes that banks will not always be able to use their capital buffers to absorb losses without breaching the leverage ratio requirement or the minimum requirement for own funds and eligible liabilities, which apply in parallel. Potential impediments to using capital buffers can vary depending on, for example, a bank’s systemic importance or the region in which it is operating. The report can contribute to the work done by macroprudential policy makers, and its findings also highlight the importance of full and timely implementation of the Basel III international regulatory framework for banks. Furthermore, the report can support discussions on improving the regulatory framework, for example in the European Commission’s macroprudential review that is scheduled for 2022.

Leave a Reply

Your email address will not be published. Required fields are marked *

Related Posts


Write your email to verify subscription


Sign up for our free newsletter and receive the latest banking and fintech stories, straight to your inbox - every week