Banks must hold a higher buffer of capital to a certain level in order to keep to European rules.
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They will have to add to that a "counter cyclical" capital conservation buffer of 2.5%, meaning capital reserves will in the coming years have to represent 7% of their loans and investments.
This allowed higher payouts, but meant there was less of a capital buffer should anything go badly wrong.
The bulk of the SEC's energies are devoted to developing a workable capital buffer, people familiar with the matter said.
Ally Financial was the only bank to fall below the minimum capital hurdle of a 5% capital buffer required to pass the test.
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Thirdly, banks are to hold a sufficient capital buffer - as outlined by global regulators - which means that if banks do fail, losses can be absorbed by shareholders and other creditors rather than the taxpayer.
Basel III additional capital buffers are: a mandatory capital conservation buffer of 2.5% and a discretionary counter-cyclical buffer.
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As part of the package of new standards, banks will be required to increase their minimum common equity requirement from 2% to 4.5%, and will additionally have to hold a capital conservation buffer of 2.5%, "to withstand future periods of stress, " the Basel Committee said in a press release.
The FDIC, like other bank regulators, has been encouraging banks to raise capital levels to buffer against the expected rise in losses and write-downs.
The Bank of England's Financial Stability Review shows that Barclays' retail banking loans in Spain, Italy and bailed-out Portugal are equivalent to a bit more than its core equity capital - its buffer against losses.
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An insurer also creates an additional pool of capital to act as a buffer, just in case.
After all, through generous political giving and effective lobbying, Fannie and Freddie have managed to fend off attempts to force them to boost the capital they hold, their buffer against losses.
That means there is less of a buffer before losses start to burn up banks' capital.
New rules on bankers' bonuses and the amount of capital that banks must hold as a buffer have been approved by the European Parliament by a big majority.
It offers governments and taxpayers more security and it reassures counterparties, depositors and debt-holders who are higher up the capital structure and who get a bigger buffer between them and losses.
As well as increasing the capital banks hold to act as a buffer against future losses from 2% to 7%, Professor Cecchetti said Basel III had made the definition of what constitutes as capital stricter and widened the remit of what counts as banking activity.
The aggregate tier one common capital ratio - assets held in reserve as a buffer against financial troubles - would fall from an actual 11.1% in the third quarter of 2012 to 7.7% in the fourth quarter of 2014 in the hypothetical stress scenario.
The commission, chaired by Sir John Vickers, an independent-minded economist, also called for a big increase in the amount of capital held within these ring-fenced banks as a buffer against losses.
All agree that banks need more capital and that a greater share of it should be pure equity, the strongest buffer against loss.
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