On 10 November 2014, the Financial Stability Board (FSB) launched a consultation1 on the adequacy of the loss-absorbing capacity of global systemically important banks (G-SIBs) in resolution. The Basel III minimum capital requirements for banks have already been implemented in many jurisdictions, including in Europe by virtue of the Capital Requirements Regulation and in the United States in July 2013. These rules require banks to hold certain amounts of different types of loss-absorbing capital, expressed as a percentage of their total risk-weighted assets – common equity Tier 1 capital of at least 4.5%, total Tier 1 capital (common equity Tier 1 + additional Tier 1) of 6% and total combined Tier 1 and Tier 2 capital of 8%.

On top of these minimum capital requirements, Basel III also prescribed the maintenance of capital buffers – a capital conservation buffer and, in certain circumstances, a counter-cyclical capital buffer. Failure to maintain the required levels of buffers leads to restrictions on payments of dividends and discretionary remuneration. The capital conservation buffer must be at least 2.5% of risk-weighted assets, the counter-cyclical capital buffer can be up to 2.5% of risk-weighted assets, and both buffers must consist of common equity Tier 1 capital.