What is the capital buffer?

This term is determined and supported by Law 10/2014, of June 26, on the management, supervision and solvency of credit institutions, in which a capital buffer is understood to be a minimum requirement of solvency that credit institutions have to comply with in a given territory, and under certain premises.

The capital buffer is understood as the total amount of Common Equity Tier 1 capital required to meet the need for a certain amount of capital conservation. In this sense, there is: a countercyclical capital buffer that will be specific for each entity; a cushion for entities that have global systemic importance; a buffer for other entities of systemic importance; and a mattress against systemic risks.

The size of said buffer or, rather, credit institutions must keep 2% of the total amount of their exposure to risk as a buffer, in accordance with Regulation (EU) 5/575, of June 2013.

El Bank of Spain It can establish supervisory mechanisms to ensure compliance with the provisions of the Law or those dictated by the Bank itself. Buffers can be required from entities in order to comply with what is stated in the law, or because the Bank of Spain has ruled that it is necessary.

It should be noted that the capital buffer that is created is of utmost importance for banks and for the country in general in which it operates. Its importance is due to the organization, supervision and solvency of credit institutions. For this reason, it is important that banking entities that have a certain relevance or great power at the state and global level adhere to this law in order to guarantee a minimum to reserve in their deposits.

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