Why wait to reform banks’ capital buffers (“Sieving the alphabet soup of banks’ capital requirements”, FT View, May 2)? Now is as good a time as any to make changes. It was clear during the Covid-19 downturn that the current operation of capital buffers was not working as banks were reluctant to release excess capital and the amount that regulators could inject into the system to support lending through lowering the countercyclical buffer requirements was inadequate.

The key is both to consolidate the buffers and significantly increase the amount that is under the control of regulators rather than bank managements.

If regulators were responsible for the decision to lower buffers and this was done on a uniform basis with advanced notice to the banks and the market — much in the way that the countercyclical buffer works now — then the issue of stigma would be significantly reduced.

I am also unconvinced about the need for a big shift in regulatory scrutiny if the overall amount of capital and risks in the system were unchanged and only buffer allocations adjusted.

While shifting more of the responsibility for decisions on buffer use to regulators might encourage them to beef up supervisory scrutiny, there is no reason for a fundamental change in the current arrangements.

Michael Lever
Former Head of Prudential Regulation, Association for Financial Markets in Europe, London N20, UK