Overlaps between minimum requirements and capital buffers: the usability of the combined buffer requirement for Italian banks

Abstract

The current EU capital regulation requires that banks comply with two main frameworks at the same time: one for prudential purposes, the other for resolution purposes. The first one includes both a risk-weighted requirement (RW) and a leverage ratio requirement (LR). Similarly, the resolution framework, which ensures that banks have enough loss-absorbing and recapitalization capacity through a Minimum Requirement of Eligible Liabilities (MREL), is based on two ratios that are to be met in parallel: the MREL as a percentage of risk weighted assets (MREL-RW) and the MREL as a percentage of the total exposure measure used for the purpose of the leverage ratio (MREL-LR). According to the EU regulation, the CBR is only required on top of the two risk-weighted requirements (RW and MREL-RW).