Banks should hold a countercyclical capital buffer
"Given the vulnerabilities in the Norwegian economy and solid earnings in the financial sector, banks should now build a countercyclical capital buffer," says Governor Øystein Olsen.
Several years of rising house prices and growth in lending have increased the risk that financial imbalances may trigger or amplify a downturn in the Norwegian economy. Household debt is still growing faster than income.
Banks' earnings are solid and losses are low. A countercyclical capital buffer will give banks more to draw on in bad times.
The Storting (Norwegian parliament) has approved new statutory provisions on capital standards for banks. In the coming months, the Ministry of Finance will issue a regulation on the countercyclical buffer.
"The aim is to present concrete advice on the buffer once the regulation has been finalised, probably in the next Monetary Policy Report, to be published on 19 September. The level of the buffer must be assessed in the light of the gradual increase in other capital requirements applying to banks," says Governor Olsen.
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