A structural model of capital buffer usability

Jan Hannes Lang and Dominik Menno

No 21/2026, Discussion Papers from Deutsche Bundesbank

Abstract: Under which conditions do usability constraints for regulatory capital buffers emerge? To answer this question, we build a non-linear structural banking sector model with a minimum capital requirement that banks are not allowed to breach, and a capital buffer requirement (CBR) that banks can breach but if they do so potential stigma applies. We prove that even very low stigma costs induce large buffer usability constraints, i.e. when faced with losses banks will deleverage significantly to avoid that their capital ratio falls below the CBR. Our findings imply that non-releas ble regulatory capital buffers are unlikely to fully achieve their macro stabilisation goal to support aggregate loan supply when the banking system faces losses.

Keywords: Bank capital requirements; capital buffers; loan supply; macroprudential policy; buffer usability (search for similar items in EconPapers)
JEL-codes: D21 E44 E51 G21 G28 (search for similar items in EconPapers)
Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:343105

DOI: 10.71734/DP-2026-21

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