Historical archive

ESRB recommends reciprocation of Norwegian capital requirements for banks

Historical archive

Published under: Solberg's Government

Publisher Ministry of Finance

The European Systemic Risk Board (ESRB) has issued a recommendation to other EEA states to reciprocate Norwegian capital requirements for banks. The recommendation concerns the new systemic risk buffer requirement and temporary risk weight floors for real estate exposures.

“Our goal is equivalent capital requirements for Norwegian and foreign banks, which will contribute to financial stability and a level playing field in the Norwegian banking market. The ESRB recommendation is therefore important and something we have long been working for,” says Minister of Finance, Jan Tore Sanner.

Background

On 8 December 2020, the Ministry of Finance adopted amendments to the capital requirements for Norwegian banks. First, a new systemic risk buffer requirement was set at 4.5 per cent for domestic exposures. For banks using the Advanced IRB Approach, the new buffer requirement has been applicable since year-end 2020, while it will apply for other banks from year-end 2022. Moreover, the Ministry adopted temporary floors for average risk weights for Norwegian residential and commercial real estate exposures, which have been applicable for IRB banks since year-end 2020.

On 2 February this year, the Ministry requested the ESRB to issue a recommendation to other EEA states to reciprocate the Norwegian requirements. Today, the ESRB published Recommendation ESRB/2021/3 amending Recommendation ESRB/2015/2, which was adopted by the ESRB on 30 April this year. Relevant authorities are recommended to reciprocate the Norwegian systemic risk buffer rate within 18 months following the publication of Recommendation ESRB/2021/3 in the Official Journal, while the average risk weight floors should be reciprocated within the standard three months transition period. Regarding the 18 month transition period for the systemic risk buffer, the ESRB says that in light of the continuing effects of the Covid-19 pandemic on the banking sector and the size of the buffer rate, it is appropriate to allow for sufficient time for the reciprocation.

Read the ESRB recommendation.

The ESRB recommendation is particularly relevant for Nordic banks with significant activities in Norway. In 2016, Nordic authorities signed a MoU on extended cooperation regarding cross-border banking activities, where the authorities acknowledged ESRB recommendations as a minimum standard for reciprocation of other states’ macroprudential measures.