As a bank’s capital levels move closer to minimum requirements, the conservation buffer will impose a constraint on its discretionary distributions. These include dividend payments, share buybacks and bonuses.
Bankruptcy provides an opportunity, not only for closing down truly insolvent enterprises in an orderly way, but for rescuing troubled ones by allowing them to cut a deal with their creditors, restructure their obligations, and go on operating on a sounder basis. But bankruptcy procedures cannot be rapidly invented or first tested in a crisis.