Advice on the countercyclical capital buffer 2021 Q2
Norges Bank’s Monetary Policy and Financial Stability Committee has advised the Ministry of Finance to raise the countercyclical capital buffer requirement to 1.5 percent, effective from 30 June 2022.
The objective of the countercyclical capital buffer is to increase banks’ resilience in an economic downturn. Norwegian banks are profitable, and credit losses are expected to be lower in 2021 than in 2020. Creditworthy businesses and households appear to have ample access to credit. Norwegian banks are well equipped to meet an increased countercyclical capital buffer requirement while maintaining credit supply.
Prior to the reduction in March 2020, the countercyclical capital buffer requirement was set at 2.5 percent against the background of a build-up of financial imbalances over a long period. During the Covid pandemic, both house prices and commercial property prices have increased markedly, and household credit growth has picked up. Property price inflation has recently moderated and is expected to continue to moderate ahead. In Norges Bank’s assessment, financial imbalances have increased somewhat over the past year. Both debt and property prices are at high levels. The consideration of financial imbalances suggests a higher buffer requirement.
“The Committee has decided to advise the Ministry of Finance to raise the countercyclical capital buffer rate to 1.5 percent, effective from 30 June 2022. In the Committee’s current assessment of economic developments and the outlook for bank losses and lending capacity, the Committee will advise further increasing the buffer rate in the course of 2021”, says Governor Øystein Olsen.
The Committee expects the buffer to return to 2.5% in the period ahead.
The Ministry of Finance decided today to follow Norges Bank’s advice.
- Ministry of Finance press release
- Norges Bank’s advice is issued in the letter: Advice on the countercyclical capital buffer 2021 Q2
- The decision basis for Norges Bank’s advice is presented in Section 5 of Monetary Policy Report 2/2021
- Norges Bank’s framework and set of indicators for advice on the countercyclical capital buffer
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