122. This section outlines the operation of the capital conservation buffer, which is designed to ensure that banks build up capital buffers outside periods of stress which can be drawn down as losses are incurred. The requirement is based on simple capital conservation rules designed to avoid breaches of minimum capital requirements.
A. Capital conservation best practice
123. Outside of periods of stress, banks should hold buffers of capital above the regulatory minimum.
124. When buffers have been drawn down, one way banks should look to rebuild them is through reducing discretionary distributions of earnings. This could include reducing dividend payments, share-backs and staff bonus payments. Banks may also choose to raise new capital from the private sector as an alternative to conserving internally generated capital.
The balance between these options should be discussed with supervisors as part of the capital planning process.
125. It is clear that greater efforts should be made t
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