Regulation on the Countercyclical Capital Buffer
Laid down by Royal Decree of 4 October 2013 pursuant to Section 2, third paragraph, of Act No. 28 of 24 May 1985 relating to Norges Bank and the Monetary System etc. (Norges Bank Act), Section 2 of Act No. 1 of 7 December 1956 relating to the Supervision of Credit Institutions, Insurance Companies and Securities Trading, etc. (Financial Supervision Act). and Section 2-9 e of Act No. 40 of 10 June 1988 relating to Financing Activity and Financial Institutions (Financial Institutions Act), the following regulation relating to the countercyclical capital buffer is laid down. Put forward by the Ministry of Finance.
The purpose of the countercyclical capital buffer is to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn and mitigate the risk that banks will amplify a downturn by reducing their lending.
Sections 1- 4 of the regulation pertain to the competent authorities' work on the countercyclical capital buffer. Section 5 pertains to financial institutions that are subject to the countercyclical capital buffer requirement under Section 2-9 e of the Financial Institutions Act.
The Ministry of Finance shall set the level of the countercyclical capital buffer. The countercyclical capital buffer shall consist of Common Equity Tier 1 capital. The level shall ordinarily be between 0 and 2.5 percent. In special cases, the level may be set higher than 2.5 percent.
A decision on the level of the countercyclical capital buffer shall be made each quarter. The first decision on the level of the buffer and a decision to increase the level shall normally enter into force no earlier than 12 months after the decision has been made. In special cases, an earlier entry into force can be decided. A decision to reduce the level of the buffer may enter into force immediately. The level shall be changed in increments of 0.25 percentage point or multiples thereof.
Each quarter, Norges Bank shall draw up a basis for the decision on the level of the countercyclical capital buffer. In drawing up the basis, Norges Bank shall exchange relevant information and assessments with Finanstilsynet (Financial Supervisory Authority of Norway). The decision basis shall contain an overview of the credit-to-GDP ratio and the extent to which it deviates from the long-term trend, as well as other indicators, and Norges Bank's assessment of systemic risk that is building up or has built up over time.
Four times a year, and no later than at the end of each quarter, Norges Bank shall provide advice to the Ministry of Finance regarding the decision on the level of the countercyclical capital buffer, including advice on the extent to which Norwegian financial institutions should meet the countercyclical capital buffer requirement for that portion of their activities carried out in another state. The advice shall be based on Norges Bank's decision basis and any guidance from the European Systemic Risk Board (ESRB).
If Norges Bank issues advice to reduce the buffer, the decision basis shall also contain an estimate of when Norges Bank will issue advice to increase the buffer.
The Ministry of Finance shall determine the extent to which Norwegian financial institutions shall meet the countercyclical capital buffer requirement set by the competent authorities in another state for that portion of their activities carried out in the state concerned, as well as any buffer requirement for activities carried out in states where the competent authorities have not set a buffer requirement.
Unless otherwise laid down in regulation or in connection with setting the level of the buffer, the countercyclical capital buffer shall be calculated using the same risk-weighted assets as for the minimum regulatory capital requirement.
A financial institution subject to the countercyclical capital buffer requirement shall, when the level of the buffer has been set, calculate its institution-specific countercyclical capital buffer. Finanstilsynet may lay down further rules concerning financial institutions' calculation of the institution-specific countercyclical capital buffer.
This regulation enters into force on 15 October 2013.