I'll try to phrase my question by example.
A bank is required to maintain minimal capital requirements according to Basel III as follows:
CET1 - 4.5%
Tier1 - 6%
Tier1 + Tier2 - 8%
In addition it has to apply these buffers:
Capital Conservation Buffer - 2.5%
Counter-cyclical Buffer - 2.5%
Systemic Risk Buffer - 1%
For simplicity purposes, let's asume that these are the exact percentages that regulator has imposed on the bank.
So, combined buffer requirement is 6%.
Let's say a bank has 1 million of risk weighted assets and following capital:
CET1 - 110k
AT1 - 0
T2 - 0
Which is correct:
a) The bank has met all capital requirements since CET1 ratio is above minimim 10.5% required including capital buffers, and other requirements (T1 6% and T1+T2 8%) are unaffected by buffers inclusion and since also met.
b) The banks has not met all capital requirements, only CET1, since T1 and total capital requirements also went up with buffer inclusion, and it will need aditional capital to meet 12% and 14% requirements respectively.
I understand here that CET1 requirements are met (including buffers 110k/1000k = 11%, minimum 4.5+2.5+2.5+1 = 10.5%.)
My question is, since buffers are included, are other capital requirements for T1 and total capital ratio also up, insted 6% and 8%, now 12% and 14% respectively,
or these last two stay unaffected by these capital buffer requirements?
Thank you!
A bank is required to maintain minimal capital requirements according to Basel III as follows:
CET1 - 4.5%
Tier1 - 6%
Tier1 + Tier2 - 8%
In addition it has to apply these buffers:
Capital Conservation Buffer - 2.5%
Counter-cyclical Buffer - 2.5%
Systemic Risk Buffer - 1%
For simplicity purposes, let's asume that these are the exact percentages that regulator has imposed on the bank.
So, combined buffer requirement is 6%.
Let's say a bank has 1 million of risk weighted assets and following capital:
CET1 - 110k
AT1 - 0
T2 - 0
Which is correct:
a) The bank has met all capital requirements since CET1 ratio is above minimim 10.5% required including capital buffers, and other requirements (T1 6% and T1+T2 8%) are unaffected by buffers inclusion and since also met.
b) The banks has not met all capital requirements, only CET1, since T1 and total capital requirements also went up with buffer inclusion, and it will need aditional capital to meet 12% and 14% requirements respectively.
I understand here that CET1 requirements are met (including buffers 110k/1000k = 11%, minimum 4.5+2.5+2.5+1 = 10.5%.)
My question is, since buffers are included, are other capital requirements for T1 and total capital ratio also up, insted 6% and 8%, now 12% and 14% respectively,
or these last two stay unaffected by these capital buffer requirements?
Thank you!
