Bank of England’s Sam Woods proposes a new bank capital model with one single buffer

Bufferati – speech by Sam Woods

Now of course by far the most important thing about a concept car is that it must look either incredibly cool or incredibly bizarre, and preferably both… But the next most important thing is to have a good name, and as this is all about buffer usability let’s call our concept capital stack the “Basel Bufferati”.
In summary, the Bufferati has:

1. A single capital buffer, calibrated to reflect both microprudential and macroprudential risks.
2. A low minimum capital requirement, to maximise the size of the buffer.
3. A ‘ladder of intervention’ based on judgement for firms who enter their buffer – no mechanical triggers and thresholds.
4. The entire buffer potentially releasable in a stress.
5. All requirements met with common equity.
6. A mix of risk-weighted and leverage-based requirements.
7. Stress testing at the centre of how we set capital levels.

The full speech is available at https://www.bankofengland.co.uk/speech/2022/april/sam-woods-speaking-at-city-week-2022-developments-in-prudential-regulation-in-the-uk