Countercyclical buffer unchanged

The Ministry of Finance has today decided to keep the level of the countercyclical capital buffer requirement for banks unchanged at 1 percent from 30 June 2015, in line with the quarterly advice from Norges Bank. In a separate letter, the Financial Supervisory Authority expressed the view that the requirement should be increased to 1.5 percent from 31 March 2016.

Based on the development of key indicators and risk factors, The Ministry of Finance has today decided not to change the countercyclical buffer requirement now. Among other things, the Ministry has put emphasis on an expected slowdown in the Norwegian economy, and that Norwegian banks in any event must continue to strengthen their equity capital in line with existing requirements. Developments in the housing market point towards increasing the countercyclical buffer requirement. Continued strong growth in house prices, which in turn could further increase households’ debt burden, can provide a basis for a future increase in the countercyclical buffer requirement.

Each quarter, Norges Bank shall provide a basis for the decision on the level of the countercyclical capital buffer, and give an assessment and advice on the level of the countercyclical buffer. In a letter of 18 March 2015 Norges Bank assessed that the rise in

house and commercial property prices may signal that financial imbalances are building up further. On the other hand, corporate credit growth is fairly low, and capital requirements for the systemically important banks will in any event increase from summer 2016. In Norges Bank’s view, the decision basis on the whole implies no change in the countercyclical buffer requirement now. However, if the rapid growth in house prices and credit continues, Norges Bank may advise the Ministry of Finance to increase the countercyclical buffer requirement effective from summer 2016. Norges Bank’s decision basis is published in the Monetary Policy Report with financial stability assessments 1/15. The Financial Supervisory Authority has in a letter of 19 March 2015 stated that, in its view, the requirement should be set at 1.5 percent from 31 March 2016.

The purpose of the countercyclical capital buffer is to strengthen the financial soundness of banks and their resilience to future loan losses. This will 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 built up. In the Norwegian economy there are signs that financial imbalances have been built up over time. This could potentially amplify or trigger an economic downturn. Banks operating in Norway are therefore required to hold a countercyclical buffer. The Ministry of Finance decided on 12 December 2013 that banks shall hold a countercyclical buffer of 1 percent from 30 June 2015. The buffer requirement is to be met with common equity tier 1 capital.

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