Date : 29 Dec 2021
Banks’ Capital BufferTags :
Indian Economy and issues relating to planning, mobilization, of resources, growth, development, and employment
Economic and Social Development-Sustainable Development, Poverty, Inclusion, Demographics, Social Sector Initiatives, etc.
Why in the News?
- Reserve Bank of India (RBI) said in its report on Trend and Progress of Banking in India 2020-21 that Scheduled commercial banks would need a higher capital cushion.
What is a capital Buffer?
- A capital buffer is a mandatory capital that financial institutions are required to hold in addition to other minimum capital requirements.
- Capital buffers were mandated under the Basel III regulatory reforms, which were implemented following the 2007-2008 financial crisis.
Capital conservation buffer (CCB)
- It was introduced under the international Basel III norms.
- The concept says that during good times, banks must build up a capital buffer that can be drawn from when there is stress.
- In India, the minimum capital requirement is 9 percent.
- The CCB would be 2.5 percentage points over and above the minimum capital requirement.
Basel Committee on Banking Supervision
- The Basel Committee on Banking Supervision (BCBS) is an international committee formed to develop standards for banking regulation.
- It is made up of Central Banks and other banking regulatory authorities.
- Basel III is an international regulatory accord of The Basel Committee on Banking Supervision (BCBS) that introduced a set of reforms designed to improve the regulation, supervision, and risk management within the banking sector.