Capital Buffers

Capital buffers are reserves that banks set aside beyond their required minimum capital to absorb potential losses during economic downturns or financial stresses. Think of them as a safety net, ensuring that the bank remains stable and can continue to operate even if financial conditions worsen. These buffers help protect depositors and maintain overall financial stability, allowing banks to weather unexpected shocks without risking insolvency or needing taxpayer support. In essence, capital buffers strengthen a bank’s resilience, promoting confidence and stability in the financial system.