Countercyclical capital buffer
The countercyclical capital buffer is intended to protect the banking sector against losses that could be caused by cyclical systemic risks increasing in the economy. Countercyclical capital buffers require banks to hold capital at times when credit is growing rapidly so that the buffer can be reduced if the financial cycle turns down or the economic and financial environment becomes substantially worse. Banks can use the capital buffers they have built up during the growth phase of the financial cycle to cover losses that may arise during periods of stress and to continue supplying credit to the real economy.
Eesti Pank has been given the responsibility for setting the levels for the countercyclical capital buffer in Estonia. Eesti Pank bases its assessments of the capital buffers and their levels on the principles agreed by the European Union in the Capital Requirements Directive and also considers the specific requirements of the Estonian economy and financial system.
Eesti Pank assesses the need for the countercyclical buffer and decides on the rate for it once a quarter.
Quarter 4, 2021
Eesti Pank decided on 29 November 2021 to extend the basis for applying the countercyclical buffer and to raise the buffer rate to 1%. The higher buffer rate will start to apply from 7 December 2022. The countercyclical capital buffer requirement is going to have two parts, with a base requirement of 1% that will mainly remain unchanged, and a cyclical requirement that Eesti Pank can raise if the systemic risk coming from the credit cycle increases. Eesti Pank’s assessment in November 2021 is that the systemic risks coming from the credit cycle are not currently large, and so the countercyclical capital buffer rate will be set at the base requirement of 1%.
- The applicable countercyclical capital buffer rate: 1%, of which the cyclical component: 0%
- The standardised credit-to-GDP ratio: 121%; its deviation from the long-term trend: -3 percentage points
- The buffer guide: 0%
- Reasoning for the buffer rate: The positive outlook for growth in the economy, the good profitability and capitalisation of the banking sector, and the efficient operation of the credit market all support the countercyclical capital buffer rate being set at the base requirement of 1%. The growth in the debt of the non-financial sector was a little faster in the middle of 2021 than the long-term growth in nominal GDP. If this were to remain the case, the risks of the credit cycle would increase and it could prove necessary to raise the countercyclical capital buffer rate above 1%.
Indicators and assessment for the countercyclical capital buffer rate
Earlier assessments for the countercyclical capital buffer rate
- Quarter 3, 2021.pdf
- Quarter 2, 2021.pdf
- Quarter 1, 2021.pdf
- Quarter 4, 2020.pdf
- Quarter 3, 2020.pdf
- Quarter 2, 2020.pdf
- Quarter 1, 2020.pdf
- Quarter 4, 2019.pdf
- Quarter 3, 2019.pdf
- Quarter 2, 2019.pdf
- Quarter 1, 2019.pdf
- Quarter 4, 2018.pdf
- Quarter 3, 2018.pdf
- Quarter 2, 2018.pdf
- Quarter 1, 2018.pdf
- Quarter 4, 2017.pdf
- Quarter 3, 2017.pdf
- Quarter 2, 2017.pdf
- Quarter 1, 2017.pdf
- Quarter 4, 2016.pdf
- Quarter 3, 2016.pdf
- Quarter 2, 2016.pdf
- Quarter 1, 2016.pdf
- Quarter 4, 2015.pdf
Decrees of the Governor of Eesti Pank
- Eesti Pank Governor’s Decree No.8 of 1 December 2015 Decree “Setting the Countercyclical Buffer”
- Eesti Pank Governor’s Decree No.9 of 1 December 2015 “Calculating the Institution-Specific Countercyclical Buffer and Recognising Countercyclical Buffer Rates from Other Countries”
Countercyclical capital buffer rates in other countries:
- The European Systemic Risk Board (ESRB) publishes countercyclical capital buffer rates in other European Union countries.
- The Basel Committee on Banking Supervision (BCBS) publishes countercyclical capital buffer rates in Basel Committee member jurisdictions.