On 12 July 2023, the Bank of England (BoE) published an updated version of its Policy Statement on the Financial Policy Committee’s (FPC) approach to setting the countercyclical capital buffer (CCyB).

The FPC’s primary responsibility, with regard to its financial stability objective, includes the ‘identification of, monitoring of, and taking of action to remove or reduce systemic risks, with a view to protecting and enhancing the resilience of the UK financial system’.

The CCyB was introduced following the global financial crisis, as a tool to address systemic risks posed by financial cycles. The UK CCyB rate is set each quarter by the FPC and enables the capital requirements of the UK banking system to be adjusted to the changing scale of risk of losses on UK exposures over the course of the financial cycle.

In 2016 the FPC published a Policy Statement that set out how it would set the UK CCyB rate in response to its remit. Since then, the FPC has used the CCyB to respond to a number of different shocks to Uk financial stability, some of which originated from outside of the financial system, such as the COVID pandemic.

The updated Policy Statement replaces the version published in 2016, in order to reflect the FPC’s experience in operationalising the CCyB and lessons learned. It includes information on:

  • What the CCyB is and how it applies.
  • The six core principles on which the FPC’s strategy for setting the CCyB is based.
  • How the CCyB helps the FPC’s primary and secondary objectives.
  • How the FPC chooses the CCyB rate, including how it assesses developments in financial vulnerabilities and the resilience of banks’ balance sheets to potential shocks.
  • How the FPC communicates its CCyB policy actions.