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 1, 2022
The assessment of Eesti Pank in mid-February 2022 is that the risks coming from the credit cycle are increasing as the economy grows. Eesti Pank decided in November 2021 that the banks would have to hold a countercyclical capital buffer at the base level of 1% from 7 December 2022. The indicators for growth in debt and for indebtedness in the non-financial sector show that it is justified to keep the cyclical component of the buffer requirement at its current rate of 0% in the first quarter of 2022. Credit growth risks are growing though, and in the near future it may prove necessary to increase the countercyclical capital buffer requirements to cover those risks.
- The applicable countercyclical capital buffer rate: 1%, of which the cyclical component is 0%, from 7 December 2022
- The standardised credit-to-GDP ratio: 117%; its deviation from the long-term trend: –6 percentage points
- The buffer guide: 0%
Reasoning for the buffer rate: The growth in the debt of the non-financial sector in autumn 2021 was a little below the long-term growth in nominal GDP, and indebtedness did not increase. It is probable however looking forward that the growth in debt may soon start to exceed consistently the long-term growth in nominal GDP, and so the systemic risks from the credit cycle may increase. For this reason it may prove necessary in the near future to raise the countercyclical capital buffer requirement above its current base level of 1% to cover those risks.
Indicators and assessment for the countercyclical capital buffer rate
Earlier assessments for the countercyclical capital buffer rate
- Quarter 4, 2021. pdf
- 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.