Riksbank Studies: Countercyclical Capital Buffers as a Macroprudential Instrument

Date 13/12/2012

The new regulations in the Basel III Accord entail new capital requirements for the banks. The first one is a minimum, static, capital requirement, and the second is a buffer, on top of the minimum requirement. One part of the buffer is also static, while another is intended to vary over time as systemic risks vary over time – i.e. a countercyclical capital buffer (CCyB).

The goal of the CCyB is to ensure that the banking sector as a whole has enough capital to carry out its most important functions. In good times when systemic risks are typically building up, the CCyB should be activated to help banks build up capital. In times of adverse financial or economic circumstances, when losses tend to deplete capital and banks are likely to restrict the supply of credit, the CCyB should be released to help avoid a credit crunch. CCyB is to be seen as one instrument in the Swedish toolkit for macroprudential policy.

The aim of this study is to provide background information on the CCyB and to highlight issues that are important for a successful implementation of these buffers.

Read the full Study here.

Read also the Riksbank Study: Creating a Swedish toolkit for macro-prudential policy