Economics • Banking & FinanceMedium
What does the term 'Capital Conservation Buffer (CCB)' under Basel III norms require banks to do?
A. Maintain an additional layer of Common Equity Tier 1 capital above the minimum regulatory requirement to absorb losses during stress periods✓ Correct Answer
B. Hold liquid assets equivalent to 100 percent of their short-term deposit liabilities
C. Restrict dividend payments exclusively to foreign institutional investors during a recession
D. Allocate a fixed percentage of loan portfolios exclusively to agricultural infrastructure
💡 Solution & Explanation
The Capital Conservation Buffer under the Basel III international regulatory framework requires commercial banks to maintain a mandatory layer of high-quality Common Equity Tier 1 capital above the strict minimum regulatory requirements, allowing institutions to absorb unexpected financial losses during periods of severe economic stress. Unlike liquidity coverage requirements that mandate holdings of high-quality liquid assets to survive short-term liquidity stress, the conservation buffer focuses explicitly on solvency protection. Questions regarding banking capital adequacy norms are essential for economic and financial awareness segments.
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