Calibrating regulatory minimum capital requirements and capital buffers: a top-down approach

October 2010

As part of its work to strengthen global capital requirements, the Basel Committee on Banking Supervision established a working group to conduct a "top-down" assessment of the overall level of capital requirements that should be held within the banking system. The working group was tasked with undertaking empirical analysis to inform the calibration of the common equity and Tier 1 risk-based ratios and the Tier 1 leverage ratio, as well as the regulatory buffers above the common equity and Tier 1 risk-based ratios. This top-down exercise was one of the inputs to the Committee's calibration of the new capital framework, and complements the cost-benefit analysis conducted by the Long-Term Economic Impact (LEI) group and detailed "bottom up" Quantitative Impact Study (QIS) of the effects of the proposed regulatory reforms on individual banks.

This note summarises the findings of the top-down calibration work. In particular, it provides a conceptual framework for the calibration work, describes the various empirical exercises that were performed, and summarises the results.