CET1minimi

CET1minimi is a term primarily used in the context of banking and financial regulation, specifically within the framework of the Basel III capital adequacy framework. CET1 stands for Common Equity Tier 1, a key measure of a bank’s core capital relative to its risk-weighted assets. CET1minimi refers to the minimum required level of CET1 capital that banks must maintain to ensure financial stability and resilience.

The concept of CET1minimi was introduced to strengthen the regulatory capital requirements for banks, particularly after the global financial crisis of 2007–2008. Under Basel III, banks are required to hold sufficient CET1 capital to absorb losses and maintain operational continuity during periods of stress. The minimum CET1 ratio is set at 4.5% of a bank’s risk-weighted assets, with an additional 2.5% buffer known as the Conservation Buffer, bringing the total minimum requirement to 7% for most banks.

The term "minimi" (Italian for "minimum") emphasizes the baseline threshold that banks must not fall below. Regulatory authorities, such as the European Central Bank (ECB) or national supervisors, monitor compliance with CET1minimi to prevent excessive risk-taking and ensure banks have adequate capital to withstand economic downturns. Failure to meet these requirements may result in corrective actions, such as restrictions on dividends or capital distributions.

CET1minimi is part of a broader set of capital and liquidity rules designed to enhance banking sector stability. While the exact implementation may vary by jurisdiction, the core principle remains consistent: maintaining a robust capital base to safeguard against financial shocks. The framework also includes other buffers, such as the Countercyclical Buffer and the Systemically Important Institutions (SII) Buffer, to address specific risks in the banking system.