The countercyclical capital buffer (CCyB) – a part of Basel III – has the purpose of ensuring that banking capital requirements consider the macro-financial environment, giving protection during periods of excess aggregate credit growth. In a recent document from the Basel Committee on Banking Supervision, the committee points out that even though the CCyB policy contains some key requirements, jurisdictions have had and still have a significant flexibility in designing their national CCyB policy framework.
As a result of this flexibility the framework designs differ among jurisdictions, incorporating divergences in
- governance structures, i.e. which authority (central bank, banking system regulator or supervisor, special committee of agencies or the government) that is responsible for operating CCyB
- the frequency of CCyB decisions and the communication of those decisions. EU members do this on a quarterly basis while some other jurisdictions review their CCyB decisions less frequently and/or communicate the decisions only when there is a change in the CCyB rate
- how many quantitative indicators that is used for the identification of periods of excess credit and systemic risk
- reciprocity practices.
Based on the abovementioned differences the committee touch on some interesting issues for the continuing work on the implementation of CCyB. Firstly, the wide range of different numbers of indicators between jurisdictions indicates a need of further research on how to comprehensively estimate and relate indicators and CCyB level to financial cycles. Secondly, it is still unclear how often CCyB decisions should be communicated. The CCyB rate is not expected to be changed frequently, wherefore the dialogue with other parties might be more effective if decisions were to be communicated less frequently, avoiding unnecessary information exchange. Thirdly, decision-makers often ask specialised agencies for advice, which could lead to difficulties due to divergent views. Hence it is of importance to increase the discussion regarding how CCyB is to be interacted with other macroprudential tools and national policies.