Basel Committee on Banking Supervision Publishes Report on Countercyclical Capital Buffer

The Basel Committee on Banking Supervision has published a report on the range of practices in implementing a positive neutral countercyclical capital buffer. The CCyB aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate, in order to increase the resilience of the banking sector and maintain the flow of credit to the real economy during periods of stress. A positive neutral CCyB is a CCyB that is set at a rate above zero at a time when risks are judged to be neither subdued nor elevated. The Basel Committee observes that authorities that have introduced a positive neutral CCyB have found it helpful for banks in their jurisdictions to have buffers of capital in place that can be released in the event of sudden shocks, including those unrelated to the credit cycle, such as the Covid-19 pandemic.

The report builds on prior publications on the same topic by examining the observed range of practices adopted by jurisdictions which have chosen to implement a positive neutral CCyB. It considers the different jurisdictional frameworks for implementing a positive neutral CCyB, describes the various observed approaches to the calibration and operation of the buffer, and discusses reciprocity considerations. The Basel Committee emphasizes that the adoption of a positive neutral CCyB approach is not required, and the report does not seek to discuss or opine on the merits or demerits of a positive neutral CCyB relative to other macroprudential measures or tools. Some jurisdictions may use tools other than the positive neutral CCyB to address similar risks, based on their specific jurisdictional circumstances.

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