Countercyclical capital buffer unchanged
In March, the decision was made to raise the countercyclical capital buffer rate to 2.5%, effective from 31 March 2023. Norges Bank’s Monetary Policy and Financial Stability Committee has decided to maintain this requirement.
Credit growth and property price inflation slowed in the course of 2021 after having been high during the pandemic. Property price inflation has moved up again in 2022 but is expected to moderate ahead. Creditworthy firms and households appear to have ample access to credit. Banks are well equipped to meet the approved countercyclical capital buffer requirement while maintaining credit supply.
Uncertainty about the outlook for global growth and inflation has recently resulted in considerable financial market volatility. An abrupt rise in foreign risk premiums and a sharp fall in asset prices may also affect the Norwegian financial system. Owing to financial system vulnerabilities, such shocks may have a more pronounced impact on the Norwegian economy.
“The countercyclical capital buffer requirement increases bank solvency, making banks more resilient to shocks”, says Governor Ida Wolden Bache.
Today, Norges Bank has published an updated framework for decisions on the countercyclical capital buffer. The update is based on recent years’ experience and practice and does not entail any change in the buffer-setting process. Today, Norges Bank has also published a framework for advice on the systemic risk buffer. In autumn, Norges Bank will advise the Ministry of Finance on the level of the systemic risk buffer.
The objective of the countercyclical capital buffer is to strengthen banks’ solvency and mitigate the risk that banks’ lending amplifies an economic downturn. The countercyclical capital buffer was reduced from 2.5 to 1.0 percent in March 2020. Decisions have been made to raise the buffer rate to 1.5, 2.0 and 2.5 percent, effective from 30 June 2022, 31 December 2022, and 31 March 2023, respectively.
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