Can capital buffers actually help banks in times of crisis?

Analysis - November 2020 - No. 25

Authors Yordanova, Ianna Georgieva; Bentzen, Christian Sinding
Subject Financial stability
Type Analysis
Year 2020
Published 25 November 2020
Abstract icon Banks' capital buffers should function as a cushion and be able to absorb losses during an economic downturn, so that banks can continue lending to the economy. The usability of buffers might however be limited, if other requirements, such as the leverage ratio requirement and MREL, exceed the capital requirements. This is the case for several of the largest Danish banks. Future amendments to regulation should therefore take into account the interaction between requirements, so that all requirements can serve their purpose.