How it works
The maximum distributable amount, usually abbreviated MDA, is the ceiling on the discretionary payments a bank may make when it breaches its combined buffer requirement. Because the combined buffer is intended to be usable in stress, dipping into it does not cause a hard breach of minimum capital, but it does automatically trigger constraints so that a weakened bank conserves capital rather than distributing it to shareholders and holders of Additional Tier 1 instruments.
The restricted distributions include dividends on shares, share buybacks, payments on Additional Tier 1 instruments and the award of variable remuneration. The permitted amount is calculated by applying a scaling factor to the bank's interim and year-end profits; the factor falls in steps as the shortfall within the buffer deepens, so that the deeper a bank is into its buffer, the smaller the proportion of profit it may distribute. A bank that has breached the buffer must also prepare a capital conservation plan for the supervisor.
A parallel mechanism, the MREL maximum distributable amount or M-MDA, applies where a bank fails to meet the combined buffer requirement when that buffer is considered on top of its MREL rather than only its risk-based own funds requirements. This allows the resolution and supervisory frameworks to restrict distributions in response to shortfalls in loss-absorbing capacity as well as capital.
Legal basis
The maximum distributable amount is established by the Capital Requirements Directive. Article 141 of the CRD sets out the restrictions on distributions that apply when an institution fails to meet the combined buffer requirement, the method for calculating the maximum distributable amount and the obligation to prepare a capital conservation plan. The combined buffer requirement itself is defined in Article 128 of the CRD.
The MREL-related restriction, the M-MDA, is provided for in Article 16a of the BRRD, which empowers authorities to restrict distributions where a bank fails to meet the combined buffer requirement on top of its MREL. Together these provisions link the buffer, capital and MREL frameworks to a common set of distribution constraints.
Practical relevance
For banks, the maximum distributable amount is a hard governance constraint: crossing the trigger converts discretionary capital-return decisions into a formula-driven limit and requires engagement with the supervisor. Management therefore manages capital to preserve a clear distance to the trigger.
For investors, the maximum distributable amount is one of the most important concepts in analysing Additional Tier 1 instruments, because coupons on those instruments are discretionary and are among the payments restricted when the buffer is breached. The distance to the trigger, and whether the binding constraint is the capital MDA or the MREL-based M-MDA, is a central input to pricing coupon-cancellation risk.