The Basel III countercyclical capital buffer is calculated as the weighted average of the buffers in effect in the jurisdictions to which banks have a credit exposure. It is implemented as an extension of the capital conservation buffer.
Updated 18 December 2018 In December 2010, the Basel Committee on Banking Supervision published which presents the details of global regulatory standards on bank capital adequacy and liquidity, including a countercyclical capital buffer. The countercyclical capital buffer aims to ensure that banking sector capital requirements take account of the macro-financial environment in which banks operate. Its primary objective is to use a buffer of capital to achieve the broader macroprudential goal of protecting the banking sector from periods of excess aggregate credit growth that have often been associated with the build-up of system-wide risk.
Due to its countercyclical nature, the countercyclical capital buffer regime may also help to lean against the build-up phase of the credit cycle in the first place. In downturns, the regime should help to reduce the risk that the supply of credit will be constrained by regulatory capital requirements that could undermine the performance of the real economy and result in additional credit losses in the banking system. The Basel III countercyclical capital buffer is calculated as the weighted average of the buffers in effect in the jurisdictions to which banks have a credit exposure.
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It is implemented as an extension of the capital conservation buffer. It consists entirely of Common Equity Tier 1 capital and, if the minimum buffer requirements are breached, capital distribution constraints will be imposed on the bank. Consistent with the capital conservation buffer, the constraints imposed relate only to capital distributions, not the operation of the bank. Banks must ensure that their countercyclical buffer requirements are calculated and publically disclosed with at least the same frequency as their minimum capital requirements.
In addition, when disclosing their buffer requirement, banks must also disclose the geographic breakdown of their private sector credit exposures used in the calculation of the buffer requirement. Jurisdictional reciprocity will be applied when it comes to internationally active banks in member jurisdictions. The countercyclical buffer regime will be phased-in in parallel with the capital conservation buffer between 1 January 2016 and year end 2018 becoming fully effective on 1 January 2019. Countries that experience excessive credit growth during this transition period will consider accelerating the build-up of the capital conservation buffer and the countercyclical buffer. In addition, jurisdictions may choose to implement larger countercyclical buffer requirements.
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In such cases the reciprocity provisions of the regime will not apply to the additional amounts or earlier time-frames. The document entitled, sets out the principles that national authorities have agreed to follow in making buffer decisions. To give banks time to adjust to a buffer level, a jurisdiction will pre-announce its decision to raise the level of the countercyclical buffer by up to 12 months.
Decisions by a jurisdiction to decrease the level of the countercyclical buffer will take effect immediately. The pre-announced buffer decisions and the actual buffers in place for all Committee member jurisdictions are published. A set of frequently asked questions on implementation of the CCyB can be found To be notified of updates, subscribe to the. For queries, please write to.