Countercyclical buffer unchanged

Today, the Ministry of Finance has decided to follow Norges Bank’s advice not to change the countercyclical capital buffer requirement of 1 percent for banks.

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 23 September 2020, Norges Bank recommended keeping the level unchanged. Norges Bank says that the economic activity has picked up in recent months but remains lower than at the beginning of the year. At the same time, financial market turbulence has subsided further and risk premiums on bank funding have returned to almost the levels that prevailed before March. Overall, households and businesses seem to have ample access to credit. Norges Bank says that there still is uncertainty related to credit losses ahead. Norwegian banks are well equipped to absorb higher losses while maintaining credit supply. Norges Bank does not expect to advise the Ministry to increase the buffer rate again until 2021 Q1 at the earliest.

Norges Bank’s assessment is published in its Monetary Policy Report with financial stability assessment 3/20. In a separate letter of 23 September 2020 to the Ministry, Finanstilsynet said that it concurs with Norges Bank’s advice.

 

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