Countercyclical buffer increases

Each quarter, The Ministry of Finance shall make a decision on the level of the countercyclical buffer. The current level of the countercyclical capital buffer requirement is 1,5 percent. The countercyclical capital buffer requirement shall be increased to 2 per cent from 31 December 2017.

The purpose of the countercyclical capital buffer is to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn and mitigate the risk that banks will amplify a downturn by reducing their lending. Banks should hold a countercyclical capital buffer when financial imbalances are building up or have built up. In the Norwegian economy, high house price inflation and a continued rise in household debt ratios are signs that financial imbalances are building up further. House prices have risen sharply in recent months. High house prices could lead to increased household debt, and makes households more vulnerable.

In a letter from the 14 December 2016 Norges Bank has advised the Ministry to increase the buffer rate from 1.5 to 2 percent effective from 31 December 2017. Norges Bank's decision basis is published in the Monetary Policy Report with financial stability assessment 4/16. The Financial Supervisory Authority concurs with Norges Bank’s advice. In their view, the growth in household debt and house prices represent a significant risk to financial stability, and this risk has increased since the last assessment of the countercyclical capital buffer.

Read more:

• Monetary Policy Report with financial stability assessment 4/16
• Advice on the countercyclical capital buffer from Norges Bank, Norges Bank's letter of 14 December 2016 to the Ministry of Finance