CRD IV capital buffers
Produced in partnership with Nicholas Mead of KPMG
CRD IV capital buffers

The following Financial Services guidance note Produced in partnership with Nicholas Mead of KPMG provides comprehensive and up to date legal information covering:

  • CRD IV capital buffers
  • Background to CRDIV capital buffers
  • CRD IV capital buffers—an overview
  • CRD IV buffers, the Capital Planning Buffer and the introduction of the PRA buffer
  • Impact on a bank’s capital requirements
  • Capital buffers and capital raising
  • Breaching capital buffers
  • Interaction with total loss absorbing capacity
  • The future of capital buffers

Background to CRDIV capital buffers

Capital buffers originated as a key component of the Basel III capital reforms which were issued in June 2011 and implemented across the EU through the Capital Requirements Directive IV / Capital Requirements Regulation (CRD IV / CRR). There are broadly three different buffers enshrined in CRD IV—the capital conservation buffer and countercyclical buffer which apply to all banks and the systemic buffer which applies only to large and systemic institutions. Whilst each of these buffers has a different purpose and is calibrated differently, all have the collective aim of increasing the robustness of a bank’s capital ratios to address the prevailing concern that banks went into the financial crisis of 2007-2009 under-capitalised which greatly exacerbated the impacts both on the banks themselves and on the taxpayer.

As a result, the impact of buffers on a bank’s capital ratios are significant. For a non-systemic bank, the application of capital buffers could increase the level of capital the bank is required to hold by up to 5% of risk weighted assets (RWAs) whilst for a systemic bank, the increase could be more significant, up to 10% of RWAs, all of which would have to be met by common equity tier 1 (CET1), the highest form of capital. As a result of their direct