The countercyclical capital buffer is designed to help counter pro-cyclicality in the financial system. Capital should be accumulated when cyclical systemic risk is judged to be increasing, creating buffers that increase the resilience of the banking sector during periods of stress when losses materialise.
The CRD IV Directive provides that the European Systemic Risk Board (ESRB) may adopt recommendations giving guidance to national competent authorities (NCAs) on setting countercyclical buffer rates. In particular, the ESRB may advise on principles to guide the NCAs in making their judgements as to the appropriate buffer rates and provide guidance on the measurement and calculation of the credit-to-GDP gap and the calculation of the buffer guide. In addition, the ESRB may provide guidance on the variables that indicate the build-up of system-wide risk associated with periods of excessive credit growth in the financial system and on the variables that indicate that the buffer should be maintained, reduced or fully released.
The ESRB has now published a recommendation on guidance for setting countercyclical buffer rates. NCAs are requested to report to the ESRB, the Council of the EU and the European Commission by 30 June 2016 on the measures they have taken to comply with the recommendation.
View ESRB recommendation on guidance for the setting countercyclical buffer rates, 18 June 2014