European Central Bank and European Systemic Risk Board publish buffer usability measurement framework and updated simulation tool

The European Central Bank (ECB) and the European Systemic Risk Board (ESRB) published a joint report setting out common definitions and methodologies for measuring how far EU banks can use capital buffers in stress once interactions between prudential and resolution requirements are considered. The report also delivers an updated analytical code base, the Buffer Usability Simulation Tool (USIT), to support consistent analysis across authorities under an open-source approach, while explicitly avoiding policy recommendations. The framework focuses on overlaps created by the parallel use of Common Equity Tier 1 capital (CET1) across risk-weighted and leverage-based requirements, including the Minimum Requirement for Own Funds and Eligible Liabilities (MREL) and Total Loss-Absorbing Capacity (TLAC). It formalises concepts including buffer usability, buffer releasability, capital headroom and going-concern effective loss-absorbing capacity, and contrasts a “baseline” approach (prudential risk-weighted stack as reference) with a “complementary” approach (max usability across prudential and resolution stacks). Using fourth quarter 2024 supervisory data for 83 Single Supervisory Mechanism (SSM) resolution groups as an illustration, the report shows average buffer usability of 45% under the baseline approach and 55% under the complementary approach, with G-SIIs exhibiting the lowest usability. USIT incorporates these methodologies and adds functions to assess the effectiveness of buffer releases under alternative assumptions (MDA-target versus P2G-target), quantify effective capital headroom after overlaps, and run alternative regulatory scenarios.