News story | Date: 08/12/2020
Today, the Ministry of Finance has adopted amendments to the capital requirements for banks that, inter alia, increases the systemic risk buffer requirement to 4.5 per cent from year-end 2020.
As stated in a press release 11 December 2019, on 5 November 2020 the Ministry notified relevant EU/EEA authorities of intended changes in capital requirements for banks, with an aim to adopt amendments effective from year-end 2020. The European Systemic Risk Board (ESRB) and the Standing Committee of the EFTA States have now assessed the Norwegian notification concerning the systemic risk buffer, and concluded that the measure is justified and in accordance with the CRR/CRD IV framework. As for the other macroprudential measures notified in November, no such assessments are needed from the EU/EEA authorities.
Today’s changes, as summarized:
- The systemic risk buffer requirement is increased from 3 to 4.5 per cent. As the buffer targets risks in the Norwegian economy, it shall only apply to domestic exposures. Any buffer requirements that target systemic risk in other states will apply to Norwegian banks’ activities in those states. Smaller banks (those using the Standardised Approach or the Foundation IRB Approach) will be subject to a two-year transitional rule, where the current systemic risk buffer requirement at 3 per cent for all exposures will continue to apply.
- In order to ensure that Norwegian residential and commercial real estate exposures are not assigned unjustifiably low risk weights by IRB banks, the Ministry has adopted temporary floors for average risk weights for such exposures at 20 and 35 per cent, respectively. The floors will be applicable for a period of two years from year-end 2020. The average risk weights in most Norwegian banks are around or above these levels today.
- DNB ASA and Kommunalbanken AS shall continue to be identified as systemically important institutions in Norway. These institutions shall therefore be subject to O‑SII buffer requirements of 2 and 1 per cent, respectively.
- The Ministry has today also sent a letter to the Financial Supervisory Authority (Finanstilsynet), requesting it to evaluate its application of Pillar 2 requirements.
The Ministry will now request the ESRB to issue a recommendation to other EEA states to reciprocate the systemic risk buffer requirement and the risk weight floors. The ESRB has in its assessment of the systemic risk buffer requirement concluded that the measure «would not entail disproportionate adverse effects on the EEA as a whole or other financial systems», and said that «reciprocation could be seen as levelling the playing field».