EU joint report on use of countercyclical capital buffer

The European Central Bank and the European Systemic Risk Board have published a joint report on the use of the positive neutral countercyclical capital buffer (PN CCyB) in the EEA. This approach has gained traction among EEA countries in recent years as a way of increasing resilience over the financial cycle and enhancing financial stability.

The report addresses areas of commonality in the approaches adopted by EEA countries, including:

• broad agreement on what a positive neutral approach means and what it is useful for.
• in most jurisdictions, there is no expectation that the PN CCyB will yield higher CCyB requirements at the peak of the cycle when cyclical systemic risks become elevated.
• there is broad consistency in the conditions that would guide authorities' decisions to release the CCyB.
• in most jurisdictions, the introduction of a PN CCyB does not need to be offset by a reduction in other capital requirements.
• clear and transparent communication is a key element in the introduction and use of a PN CCyB.

The report also addresses areas of challenge to implementing PN CCyB, including:

• potential overlaps with the objective of the Systemic Risk Buffer (SyRB) which is concerning for the majority of authorities that have not adopted a PN CCyB approach.
• a lack of clarity in EU legislation as an obstacle to adopting a framework for the use of a PN CCyB rate.
• the need to promote a more consistent implementation of the CCyB in the EU, including reaching a shared understanding of the objectives of a PN CCyB approach.

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