Banks should hold a countercyclical capital buffer
"Given the vulnerabilities in the Norwegian economy, banks should now build countercyclical capital buffers," says Deputy Governor Jan F. Qvigstad.
Several years of rising house prices and lending have increased the risk that financial imbalances may trigger or amplify an economic downturn in Norway. House price inflation has slowed, but household debt continues to rise faster than income.
A countercyclical capital buffer will give banks more to drawn on in bad times. But there may be costs associated with raising banks' capital ratios, and the level of the buffer must be considered in the light of other capital requirements that will be gradually increased.
"Norges Bank expects that the regulation relating to the countercyclical capital buffer will be finalised in the course of autumn, so that the Bank can give concrete advice in December," says Qvigstad.
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