The issue is quite complex, because both the actual and the appropriate size of a buffer shift over time depending on the market and systemic environment. With regard to capital buffers, it is not yet clear how required, desired and actual capital levels will evolve over a full cycle under Basel II, but a framework is now in place for tracking and assessing this.
Regulatory minima are one of several inputs into firms’ capital decisions. Banks have made significant efforts to raise new capital to meet anticipated needs relative to regulatory minima as well as to respond to the need to reassure markets. Banks clearly see a benefit to maintaining capital significantly above regulatory minima, and markets (including rating agencies) reward them for healthy capital levels.