• Published on 29 November 2024
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Basel Committee publishes report on capital buffer practices

The Basel Committee on Banking Supervision today issued a range of practices report on implementing a positive neutral countercyclical capital buffer (CCyB).

In 2010, the committee published guidance that detailed the key requirements for operating the CCyB, and in 2017 it published a paper discussing the range of practices in implementing the CCyB, which examined how jurisdictions have used the flexibility in the CCyB framework when designing their CCyB policies.

Since then, an increasing number of jurisdictions have chosen to use this flexibility to voluntarily introduce a positive neutral CCyB, ie a non-zero CCyB, when risks are judged to be neither subdued nor elevated. In 2022, the committee published a newsletter in which it supported and acknowledged the benefits of authorities' ability to set a positive neutral rate for the CCyB.

This report builds on those prior committee publications by examining the observed range of practices adopted by jurisdictions which have chosen to implement a positive neutral CCyB. It considers the different jurisdictional frameworks for implementing a positive neutral CCyB, describes the various observed approaches to the calibration and operation of the buffer, and discusses reciprocity considerations.

Authorities that have introduced a positive neutral CCyB have found it helpful for banks in their jurisdictions to have buffers of capital in place that can be released in the event of sudden shocks, including those unrelated to the credit cycle, such as the COVID-19 pandemic.

The adoption of a positive neutral CCyB approach is not required by committee members, and the report does not seek to discuss or opine on the merits or demerits of a positive neutral CCyB relative to other macroprudential measures or tools. Some jurisdictions may use tools other than the positive neutral CCyB to address similar risks, based on their specific jurisdictional circumstances.

Re-disseminated by The Asian Banker