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Countercyclical buffer unchanged

Today, the Ministry of Finance has decided not to change the countercyclical capital buffer requirement for banks.

The buffer requirement currently stands at 2 percent, and will be increased to 2.5 percent from 31 December 2019, as decided by the Ministry in December 2018.

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.

Each quarter, Norges Bank shall provide advice to the Ministry on the level of the countercyclical capital buffer requirement. In a letter of 19 June 2019, Norges Bank recommended keeping the level unchanged, and said that its assessment of financial imbalances has not changed substantially since the past quarter. Norges Bank also said that household debt ratios are high and have built up substantially over many years. Household debt is still growing faster than income, but the pace of growth has slowed somewhat in recent quarters. Following a long period of rapid growth, both residential and commercial property prices are at historically high levels. In the period ahead, Norges Bank expects that higher interest rates and moderate house price inflation will dampen household debt growth further. In the commercial real estate market, somewhat weaker price development is expected ahead. Norges Bank’s assessment is published in its Monetary Policy Report with financial stability assessment 2/19.

In a separate letter of 19 June 2019 to the Ministry, Finanstilsynet said that it concurs with Norges Bank’s advice.

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