Countercyclical buffer unchanged

The purpose of the countercyclical capital buffer requirement is to strengthen banks’ solvency and resilience to absorb loan losses, in order to 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 been built up.

Each quarter, Norges Bank shall provide advice to the Ministry on the level of the countercyclical capital buffer requirement. In a letter of 17 June 2020, Norges Bank recommended keeping the level unchanged. Norges Bank says that developments since the buffer rate was lowered in mid-March confirm that the Norwegian economy is in a severe downturn. Extensive measures introduced by the authorities have dampened the downturn. At the same time, financial market volatility has diminished and risk premiums on banks’ wholesale funding have fallen. Norges Bank does not expect to advise the Ministry to increase the buffer rate again until 2021 Q1 at the earliest. Normally, implementation of an increase in the countercyclical capital buffer will not then be required until 2022 Q1 at the earliest.

Norges Bank’s assessment is published in its Monetary Policy Report with financial stability assessment 2/20. In a separate letter of 17 June 2020 to the Ministry, Finanstilsynet said that it concurs with Norges Bank’s advice.

More:

• Norges Bank’s advice on the countercyclical capital buffer 2020 Q2