Regulatory Alerts2022-05-17
Part 7 (November 2019) Capital Review
The Financial Policy Committee finalizes the domestic capital framework by mandating a 15 to 16 percent Tier 1 ratio for systemically important banks and a 14 percent floor for smaller institutions, while retaining Tier 2 capital and eliminating contingent triggers from Additional Tier 1 instruments. The updated regime introduces an 85 percent output floor and a 1.2 scalar for internal ratings-based risk weights to align outcomes with the standardized approach, alongside a 1.5 percent countercyclical capital buffer and a 2 percent buffer for domestic systemically important banks. Implementation will follow a seven-year transitional period to mitigate credit rationing risks, with cost-benefit analysis indicating that all calibrated options deliver positive net economic benefits while maintaining resilience above international baselines.