Definition
Capital Conservation Buffer (CCB)
The Capital Conservation Buffer is an extra layer of CET1 capital banks must hold above the regulatory minimum, breaching which restricts dividend payouts.
Under Basel III, the CCB is built from CET1 capital and sits on top of the minimum CRAR. It is meant to be drawn down in stress, but doing so triggers automatic limits on a bank's discretionary distributions such as dividends and bonuses.
The RBI phased in the CCB for Indian banks, raising the effective common-equity requirement. The buffer ensures banks enter downturns with extra capital and conserve it by curbing payouts rather than continuing to distribute capital they may need to absorb losses.
Related terms
- Capital Adequacy Ratio (CAR / CRAR)The Capital Adequacy Ratio, also called CRAR, is the ratio of a bank's capital to its risk-weighted assets, measuring its ability to absorb losses.
- Common Equity Tier 1 (CET1)Common Equity Tier 1 is the highest-quality bank capital, consisting of paid-up equity shares, share premium and retained earnings, net of regulatory deductions.
- Basel III NormsBasel III is the global bank regulation framework, adopted by the RBI, that strengthens capital quality, adds liquidity and leverage standards, and introduces capital buffers.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.