Advice on the countercyclical capital buffer 2018 Q4
Norges Bank has advised the Ministry of Finance to increase the countercyclical capital buffer to 2.5 percent, effective from 31 December 2019.
Household debt ratios are high and rising. Property prices have risen rapidly for many years and are now at historically high levels. As a result, financial imbalances have built up. Banks meet their capital targets and their profitability is solid.
In the 2018 Financial Stability Report, financial system vulnerabilities in Norway are assessed as having increased somewhat over the past year, primarily owing to rising commercial property prices. In addition, the stress test in the Report shows that banks would have to draw down their countercyclical capital buffer and some of the other buffers in order to maintain lending in the event of a pronounced downturn in the Norwegian economy. This suggests that a larger portion of the total buffer requirement should be time-varying.
EU regulations will be implemented in 2019, which will reduce the capital required to achieve the same risk-weighted capital ratio level. This means that banks can now withstand an increase in the buffer rate without having to make substantial adjustments.
"Banks should become more resilient during an upturn. Norges Bank has advised the Ministry of Finance to increase the countercyclical capital buffer to 2.5 percent", says Øystein Olsen.
In line with Norges Bank's advice, the Ministry of Finance decided today to increase the countercyclical capital buffer to 2.5 percent.
- Ministry of Finance press release
- Norges Bank's advice is issued in the letter: Advice on the countercyclical capital buffer 2018 Q4
- The decision basis for Norges Bank's advice is presented in Section 5 of the December 2018 Monetary Policy Report and Indicators of financial imbalances
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Press conference 13 December 2018