The Capital Buffer and Capital Planning-Banks Essay - 1

The Capital Buffer and Capital Planning-Banks - Essay Example According to this article, FINMA categorizes different financial institutions into different groups based on their total material goods, possessions under management, fortunate and required own funds. Pillar 2 describes the limits for capital buffers in line with categorization. The support sets the capital adequacy requirements in a digressive manner that depends on the size of the institution and its complexity. These limits described by this support include the capital ratio that is applicable to establish the capital adequacy of an institution. The other limit is the capital ratio that needs an immediate action according to the supervisory law. The pillar claims that all financial institutions need to improve the quality of its financial status the help to meet the capital adequacy target of the whole system. Another trait common to most of the financial institutions includes an inability to fulfill the capital buffer target. The author claims that an organization can be permitte d to fail to comply with the capital adequacy target upon lack of notification. These organizations are advised to inform the FINMA in advance. The company should also explain the date of meeting the compliance and the method of complying with the capital adequacy target.