Norges Bank’s framework for the countercyclical capital buffer
The framework consists of the principles and the information basis for Norges Bank’s decision on the countercyclical capital buffer.
Norges Bank’s decisions on the CCyB rate are based on the following principles:
The CCyB rate shall reflect an assessment of cyclical vulnerabilities in the financial system. Experience shows that economic downturns are typically amplified following a period of sharp rises in credit and asset prices. The assessment of cyclical vulnerabilities is based on a broad set of indicators, empirical models and analyses.
Bank should normally hold a CCyB. Such buffers strengthen banks’ solvency and mitigate the risk that banks amplify an economic downturn. The CCyB is not an instrument for fine-tuning credit growth or asset prices. Under the rules, the countercyclical capital buffer should, in principle, range between 0% and 2.5%. The buffer rate should normally be in the higher part of this range. This is supported by analyses of the need for time-varying capital buffers, such as stress tests. The CCyB rate should not be reduced automatically even if there are signs that cyclical vulnerabilities are receding. If cyclical vulnerabilities recede significantly over time and the outlook for financial stability is good, the CCyB rate may be reduced. In the event of particularly high cyclical vulnerabilities, the CCyB rate may be set above 2.5 percent.
In the event of a downturn that causes or potentially causes clearly reduced access to credit, the CCyB rate should be lowered. A reduction in the CCyB mitigates the risk of tighter lending standards, which can amplify a downturn. For the sake of predictability for banks, when the CCyB is reduced, an estimate will be provided of the earliest expected date for when the CCyB rate will be raised again.
Framework is available in Norwegian only in Norges Memo 4/2022. Forthcoming in English.