Advice on the countercyclical capital buffer 2020 Q1
Norges Bank’s Monetary Policy and Financial Stability Committee has decided to advise the Ministry of Finance to reduce the buffer rate to 1.0 percent.
Norges Bank shall advice the Ministry of Finance on the level of the countercyclical capital buffer for banks. The countercyclical capital buffer rate is currently 2.5 percent.
In recent weeks, there has been considerable financial market volatility. The outbreak of coronavirus (Covid-19) and the measures to limit contagion will have a significant negative impact on growth in the Norwegian economy. There is substantial uncertainty about the duration and the consequences of the outbreak, with a risk of a pronounced economic downturn.
Norwegian banks are solid. They have sufficient capital to absorb losses in the event of a severe downturn. A tightening of lending standards may, however, amplify the downturn in the economy.
Against this background, the Committee has decided to advise the Ministry of Finance to reduce the buffer to 1.0 percent with immediate effect. The decision was unanimous.
Norwegian banks are profitable. When banks’ general meetings decide on dividend payments, they should in the period ahead take account of the extraordinary situation now facing our country.
The Committee does not expect to advise the Ministry to increase the buffer rate again until 2021 Q1 at the earliest. Normally, implementation of an increase in the countercyclical capital buffer will not be effective until 2022 Q1 at the earliest. In preparing its advice on the countercyclical capital buffer, Norges Bank has exchanged information and assessments with Finanstilsynet (Financial Supervisory Authority of Norway).
Øystein Olsen Torbjørn Hægeland