12. Maximum Distributable Amount
Maximum Distributable Amount (MDA): the automatic brake on dividends, AT1 coupons and bonuses
Capital, Regulation
A bank can meet every minimum capital requirement and still be blocked from paying a single dividend. The trigger has a name: the Maximum Distributable Amount, or MDA.
Here is how it works.
A bank's Common Equity Tier 1 capital (CET1) ratio is used in a strict order. First it covers the hard minimums, Pillar 1 and the Pillar 2 Requirement. On top of those sits a buffer zone, the Combined Buffer Requirement: the capital conservation buffer, the countercyclical buffer and the systemic buffers. All those buffers need to be covered by CET1 capital.
When a bank has capital to cover the minimum requirements but not the buffers, an automatic cap on payouts switches on anyway, with no supervisory decision needed.
And the cap is graduated. The buffer is split into four equal quarters and the more the buffer is consumed, the smaller the share of profit the bank may distribute: up to 60%, then 40%, then 20%, then nothing in the lowest quarter.
A quick example. Profit of €1bn, CET1 buffer needed of 4%, while the bank has only 2.5% (sitting in the third quarter): the bank may pay out at most 40%, so €600m.
The same rule catches Additional Tier 1 (AT1) coupons and bonuses, together with dividends. That is why the "distance to MDA" is a number the market watches closely: it is the headroom before a bank might switch its coupons off.
