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 advice from Norges Bank. The Financial Supervisory Authority has stated that it believes the requirement should be set at 1,5 percent from 31 December 2015.

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. The Ministry has among other things put emphasis on increased uncertainty about future economic development. Housing prices are rising at the same time as there are signs of a slowdown in the Norwegian economy, particularly as a result of the fall in oil prices. It is important that banks utilize current high profits to strengthen their equity capital. Lasting financial imbalances may facilitate an increase in the countercyclical buffer requirement in the future.

Each quarter, Norges Bank shall draw up a basis for the decision on the level of the countercyclical capital buffer, and provide an assessment and advice about the level of the countercyclical buffer. In a letter of 10 December 2014 Norges Bank adviced the Ministry not to change the countercyclical buffer requirement now. Norges Banks assesment is that all in all,  financial imbalances have not been built up further since the last decision on buffer. However, recent developments in the housing market and in banks’ lending practices could lead to increased financial vulnerability in households. Norges Bank's decision basis is published in the Monetary Policy Report with financial stability assessments 4/14. The Financial Supervisory Authority has in a letter of 11 December 2015 stated that it believes the requirement should be set at 1,5 percent from 31 December 2015.

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 in a future downturn. 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 should therefore 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.


Read more:

Monetary Policy Report with financial stability assessment 4/14