First advice on the countercyclical capital buffer
"Norges Bank has for the first time issued advice to the Ministry of Finance on the countercyclical capital buffer for banks. The advice will be published when the Ministry of Finance has made its decision," says Deputy Governor Jan F. Qvigstad.
The premise for the advice is that banks should build up and hold a countercyclical capital buffer when financial imbalances are building up or have built up over a period. This will increase banks' resilience to future loan losses. The level of the buffer must also be viewed in the light of other requirements applying to banks. Banks will be allowed to draw on the buffer in the event of an economic downturn and large bank losses with a view to mitigating the procyclical effects of tighter bank lending.
The decision basis for the advice is presented in the December 2013 Monetary Policy Report. The ratio of total credit to GDP is at a historically high level. Household debt has risen faster than income for a long period, but lower house price inflation may contribute to reducing debt growth further ahead.
"The analyses in the Report indicate that there is still a risk that financial imbalances may trigger or amplify a downturn in the Norwegian economy. In the years ahead, the other capital requirements for banks will be increased. This has also been taken into account in our advice," says Deputy Jan F. Qvigstad.
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