Maximum distributable amount
Sector Deep DivesThe automatic cap on dividends, buybacks, additional tier 1 coupons and bonuses that applies once a bank falls into its combined buffer.
Also written: MDA, MDA trigger
A bank's capital requirement is built in layers: a minimum set by the rules, a bank specific requirement set by the supervisor, and a combined buffer on top of both. Falling below the top of that buffer is not a breach of a requirement. It triggers the maximum distributable amount, an automatic cap on what the bank may pay out.
The cap covers ordinary dividends, share buybacks, additional tier 1 coupons and discretionary bonuses, and it tightens the further into the buffer the bank falls. No supervisory decision is needed for it to apply, which is what makes it different from an intervention and what makes it predictable enough to be priced.
The consequence surprises people, and it is worth saying plainly: a bank can be profitable, comfortably above every stated minimum, and still unable to pay its dividend in full. For an equity investor the capital number that matters is therefore the distance to the trigger, quoted in basis points of CET1, and not the distance to the minimum.
It also explains behaviour that otherwise looks over cautious. Banks run a management buffer above the trigger because a cancelled distribution, and the signal it sends about the balance sheet, costs far more than carrying slightly more capital than the rules demand.
Worked example
Illustrative: a bank reports a CET1 ratio of 11.8%. Its minimum plus supervisory requirement is 9.0% and its combined buffer is 3.5%, so the trigger sits at 12.5%.
It is 280 basis points above the requirement and 70 basis points below the trigger. Distributions are capped.
The statement that the bank is well above its minimum is true and irrelevant. The buffer is the thing that binds.