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 buffer requirement requires banks to add capital at times when credit is growing rapidly so that the buffer can be reduced when the economic cycle turns. Banks can use the additional 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 nature of the Estonian economy and credit cycle.

Eesti Pank assesses the need for the countercyclical buffer and decides on the rate for it once a quarter.

Countercyclical capital buffer rates in other European Union countries are published on the website of the European Systemic Risk Board (ESRB).

Eesti Pank Governor’s Decrees:

• Eesti Pank Governor’s Decree No 8 of 1 December 2015 “The countercyclical capital buffer rate”
• Eesti Pank Governor’s Decree No 9 of 1 December 2015 “Calculation of credit institution specific countercyclical capital buffer rate and recognition of the countercyclical capital buffer rate set in another country”