The countercyclical capital buffer

In reaction to the Basel III regulatory framework, CRD IV introduced an important macroprudential instrument into EU regulatory practice: a countercyclical capital buffer. This instrument is designed to increase the resilience of the financial system to risks associated with the behaviour of the banking sector over the financial cycle, and especially with large fluctuations in lending, which amplify cyclical swings in economic activity. If a delegated macroprudential policy authority concludes that the cyclical part of systemic risk is increasing, it should ensure that capital accumulates in the banking sector through the creation of a capital buffer that increases its resilience. Conversely, in a period of declining cyclical systemic risks, this buffer is released. It can be used to cover credit losses or to lend to the real economy without the banking sector’s resilience being reduced.

The CNB assesses the degree of cyclical systemic risk on a quarterly basis. Based on this assessment, it may set or change the countercyclical buffer rate for the Czech Republic. The rate was set for the first time on 1 October 2014. The countercyclical capital buffer rate becomes legally binding upon the issuance of a provision of a general nature. When the rate is increased, the institutions concerned are usually notified one year in advance of the rate taking effect. If the rate is reduced, the new rate can take effect immediately. The CNB stands ready to sharply reduce the rate to zero (i.e. to release the buffer in full) in the event of adverse shocks giving rise to a risk of disruptions to smooth lending to the economy. The CNB can also release the buffer gradually by cutting the rate if the financial cycle enters a downturn and the risk of excessive credit growth decreases. For more details on the CNB’s approach to the countercyclical capital buffer in the Czech Republic, see The CNB’s approach to setting the countercyclical capital buffer (pdf, 617 kB).

Countercyclical capital buffer rate

  • Current rate: 2%

Provision of a general nature on setting the countercyclical capital buffer rate

Data for the calculation of parameters for setting the countercyclical capital buffer rate

Countercyclical buffer rates in EU countries (external link)

Material third countries: Russia and Turkey.