The Bank of England has published a policy statement on the Financial Policy Committee’s (FPS) approach to setting the UK countercyclical capital buffer (CCyB).

The policy statement updates the FPC’s strategy for setting the CCyB with the following core principles:

  • the FPC’s primary objective in setting the CCyB is to ensure that the banking system is able to withstand stress without restricting essential services, such as the supply of credit, to the real economy;
  • the FPC intends to vary the buffer – both up and down – in line with the risk, at the same level, that banks will incur losses on UK exposures;
  • increasing the CCyB may also restrain credit growth and mitigate the build-up of risks to banks, but this is not its primary objective and will not usually be the primary objective guiding its setting;
  • the FPC intends to set the CCyB above zero before the level of risk becomes elevated. In particular, it expects to set a CCyB in the region of 1% when risks are judged to be neither subdued nor elevated. This expectation will be kept under review; and
  • by moving early, before risks are elevated, the FPC expects to be able to vary the CCyB gradually , and to reduce its economic cost.

View FPC policy statement on approach to setting countercyclical capital buffer, 5 April 2016