In brief, the idea is that a bank’s distribution of capital to shareholders or employees will be progressively more restricted as capital levels fall below required buffers, but – unlike the case where capital levels fall below minimum requirements – a bank need not bring its capital levels above the buffer by shedding assets or raising new capital.
Basel III introduced a “fixed” capital buffer of 2–1/2 percent of common equity on top of the 4–1/2 percent minimum capital requirement. The countercyclical capital buffer would be placed on top of the fixed buffer.