Chapter 1: Revision of Capital Buffer Framework

The capital buffer concept for banks misses its target: The capital buffers do not harm financial stability. However, they do not make a positive contribution either. Based on sobering practical experience, an alternative capital buffer concept has been developed. What is striking is that capital buffers for a bank no longer consist of seven components. Instead, the capital buffer consists of only two components: a resilience buffer and a sustainability buffer. The alternative capital buffer concept is effective in generating sufficient financial stability. It is not per se about higher capital buffers for banks. Instead, simple and transparent handling is highly beneficial to both banks and supervisors. However, this simple handling requires comprehensive analyses of systemic risks. Stress tests have an essential role to play here.