Bank Capital Adequacy & Buffer Stress Lab
Simulate bank Common Equity Tier 1 (CET1) headroom, Swiss "Too Big To Fail" regulatory surcharges, RWA shock losses, and Return on Equity (RoE) tradeoffs under tightening capital rules.
Capital Solvency Assessment
Profile: UBS / Swiss TBTFRegulatory Breach Detected
CET1 capital drops below the required 14.0% threshold post-stress. The bank would face distribution curbs on dividends and executive bonuses.
| Post-Shock RWA | $583.2 B |
| Post-Shock CET1 | $63.0 B |
| Required CET1 Buffer | $81.6 B |
| AT1 Capital (Absorption) | $18.0 B |
| Total Tier 1 Capital | $81.0 B |
| CET1 Headroom / (Deficit) | -$18.6 B |
Understanding Regulatory Bank Capital
Bank capital regulations, such as Basel III and the Swiss "Too Big To Fail" (TBTF) regime, mandate that institutions hold equity proportional to their risk-weighted assets (RWA) and total balance sheet exposure. As demonstrated in post-Credit Suisse debates involving UBS leadership, excessive capital demands safeguard depositors but diminish Return on Equity (RoE) and lending capacity.
This simulator models how tightening capital floors and severe macro stress shocks interact with equity preservation, dividend viability, and regulatory breach triggers.
Frequently Asked Questions
What is Common Equity Tier 1 (CET1)?
CET1 is the highest quality of bank regulatory capital, composed of common shares, retained earnings, and accumulated other comprehensive income. It serves as the primary shock absorber against credit and market losses.
How does the Swiss "Too Big To Fail" (TBTF) surcharge work?
Following systemic bank rescues, Swiss authorities proposed tightening capital requirements for globally active institutions like UBS, targeting CET1 and total loss-absorbing capacity (TLAC) ratios that can exceed 18–19% to eliminate state backstop risks.
Why does higher capital lower Return on Equity (RoE)?
RoE is calculated as Net Income divided by Common Equity. When regulators demand banks retain more equity capital for the same asset base, the denominator expands, compressing percentage shareholder returns unless profitability scales proportionally.