Basel III Capital Proposals: Basel Committee Issues Countercyclical Capital Buffer Proposal

Sullivan & Cromwell LLP - July 28, 2010

On July 16, 2010, the Basel Committee on Banking Supervision published a consultative document entitled “Countercyclical Capital Buffer Proposal” as part of the Committee’s ongoing bank capital reform process. This proposal seeks to implement a requirement for an additional minimum Tier 1 regulatory capital buffer that would be triggered by regulatory authorities from time to time during periods of excessive aggregate credit growth in the economy which is indicative of systemic risks building in the national and international banking system. Banking institutions that fail to meet this add-on capital buffer after a 12-month implementation period would be subject to restrictions on distributions until the add-on buffer is lifted as underlying macroeconomic conditions change.