Regulatory capital—purpose, quantity and quality
Produced in partnership with Morrison & Foerster

The following Financial Services practice note produced in partnership with Morrison & Foerster provides comprehensive and up to date legal information covering:

  • Regulatory capital—purpose, quantity and quality
  • Definition of regulatory capital
  • Purpose of regulatory capital
  • Reasons why banks need to have regulatory capital
  • Quality of regulatory capital
  • Quantity of regulatory capital
  • CRD V and CRR II

Regulatory capital—purpose, quantity and quality

BREXIT: 11pm (GMT) on 31 December 2020 (‘IP completion day’) marked the end of the Brexit transition/implementation period entered into following the UK’s withdrawal from the EU. Following IP completion day, key transitional arrangements come to an end and significant changes begin to take effect across the UK’s legal regime. This document contains guidance on subjects impacted by these changes. Before continuing your research, see: Brexit and financial services: materials on the post-Brexit UK/EU regulatory regime.

This Practice Note provides a summary of the internationally recognised requirement for financial institutions, in particular banks and investment firms, to maintain a minimum level of regulatory capital. It considers what regulatory capital is, its purpose and the quality and quantity required by current regulation. The current international standard stems from the Basel III regime as published by the Basel Committee on Banking Supervision (BCBS). On 20 June 2013, the Council of the European Union adopted the CRD IV package to implement the Basel III international reforms across Member States in Europe and to introduce stricter capital requirements for banks and investment firms. The CRD IV package was published in the Official Journal on 1 July 2013 and the majority of provisions came into effect on 1 January 2014 (for further background on CRR and CRD IV see Practice Note: CRD IV—essentials).

Definition of regulatory capital

Regulatory capital refers to

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