What is the countercyclical capital buffer?
The countercyclical capital buffer is a component of the total capital requirement that banks must meet to be more resilient. It is intended to contribute to building bank capital during upturns.
During downturns, the requirement for countercyclical capital buffer can be reduced. This can prevent banks from amplifying a downturn by over-tightening their lending to comply with capital requirements.
Norges Bank issues advice to increase the buffer when financial imbalances are building up or have built up. Financial imbalances increase the risk of an abrupt decline in demand and bank loan losses. The buffer rate should be lowered in the event of a severe economic downturn and clearly reduced access to credit.
The Ministry of Finance sets the level of the buffer four times a year. Norges Bank draws up a decision basis and provides advice to the Ministry of Finance regarding the level of the buffer. The advice is submitted to the Ministry of Finance in connection with the publication of Norges Bank’s Monetary Policy Report.
The buffer rate shall ordinarily be between 0 and 2.5 percent of banks’ risk-weighted assets, but in special circumstances may be set higher.