Norges Bank shall set the countercyclical capital buffer rate

Today, the Government has decided that Norges Bank will be assigned the task of setting the countercyclical capital buffer rate on a regular basis. The Government has also decided that Norges Bank regularly shall advise the Ministry on the systemic risk buffer rate.

“Since 2013, Norges Bank has provided advice on the countercyclical capital buffer rate. The advice has been well-founded and has guided the Ministry’s decisions. The time has now come to delegate the decision-making authority to Norges Bank. The Monetary Policy and Financial Stability Committee, established in accordance with the new Central Bank Act, has also strengthened the Bank’s decision-making competence in this field,” says Minister of Finance Jan Tore Sanner.

The countercyclical capital buffer

The purpose of the countercyclical capital buffer requirement is to strengthen banks’ solvency and resilience to absorb loan losses, in order to mitigate the risk that banks will amplify a downturn by reducing their lending. Banks should hold a countercyclical capital buffer when financial imbalances are building up or have been built up. In 2012, a working group appointed by the Ministry of Finance proposed that Norges Bank should set the countercyclical capital buffer rate. Following a public consultation, the Ministry concluded that the decision-making authority should rest with the Ministry until experience had been gained. Since 2013, Norges Bank has been tasked with advising the Ministry on the level of the buffer rate on a quarterly basis. The rate was increased gradually until 2020. During the pandemic, the rate was reduced, but raised again earlier this year. Authorities and banks have gained experience with the buffer. Today, the Government has adopted a provision that delegates the authority to set the countercyclical buffer rate to Norges Bank. The provision enters into force on 10 September 2021.

The systemic risk buffer

The purpose of the systemic risk buffer is to bolster banks’ solvency and resilience against loan losses and other disturbances that may arise as a result of structural vulnerabilities in the Norwegian economy and other long-term systemic risks. In December 2020, the Ministry of Finance adopted amendments to the systemic risk buffer requirement. In addition to increasing the buffer rate, the requirement was designed to apply for both Norwegian and foreign banks' exposures in Norway. In May, the European Systemic Risk Board (ESRB) issued a recommendation to other EEA states to reciprocate the Norwegian systemic risk buffer requirement. In accordance with the CRR/CRD IV framework, the systemic risk buffer rate shall be assessed at least every two years. There is a need for coordination, discussions, etc. with the ESRB and other bodies and authorities. To contribute to well-founded decisions, and to strengthen the contact with the ESRB, the new provision also stipulates that Norges Bank shall advice the Ministry on the systemic risk buffer.

Provision on countercyclical capital buffer decisions and advice on the systemic risk buffer (in Norwegian only) (PDF)