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Stand:updated on 30.01.2024 | Topic Own funds, Macroeconomic supervision Countercyclical capital buffer

The countercyclical capital buffer (CCyB) is a macroprudential banking supervisory tool. It is intended to increase the resilience of banks by building up a capital buffer. The legal bases for the buffer are set out in particular in Articles 130 and 135 to 140 of the Capital Requirements Directive (CRD IV)1, which has been transposed into German law through section 10d of the German Banking Act (KreditwesengesetzKWG) in conjunction with section 64r of the KWG.

By a general administrative act of 31 January 2022, BaFin set the rate for the domestic countercyclical capital buffer for the first quarter of 2022 at 0.75 percent of the total risk exposure amount determined in accordance with Article 92(3) of Regulation (EU) No 575/2013. This decision is confirmed for the first quarter of 2024.

Background

In general, macroprudential tools enable the competent authorities to take legal supervisory measures to ensure financial stability. The countercyclical capital buffer specifically is intended to make the banking sector resilient in the face of systemic risks associated with the credit cycle. The idea behind the countercyclical capital buffer is as follows: in times of excessive credit growth, banks are required to build up an additional capital buffer. This buffer generally increases the loss-absorbing capacity of banks. In times of crisis, banks are explicitly allowed to use up the buffer and to use it to mitigate losses. This is aimed at preventing a credit crunch.

Countercyclical capital buffer in Germany

The value for the countercyclical capital buffer in Germany is defined by the Federal Financial Supervisory Authority (Bundesanstalt für FinanzdienstleistungsaufsichtBaFin). This usually amounts to between 0% and 2.5% and can be set in 0.25 percentage-point increments. If necessary, a value in excess of 2.5% can be set.

The decision regarding the buffer rate is based on an analysis of a variety of factors. The primary indicator is the development of the credit-to-GDP gap, i.e., the deviation in the ratio of lending to gross domestic product from the long-term trend. A series of additional supporting indicators are also used to evaluate the cyclical systemic risk. Finally, other information may be taken into account, such as quantitative and qualitative market and banking supervisory information, as well as stress test results. The rate for the domestic countercyclical capital buffer is determined on the basis of a consideration of the overall picture. A detailed description of how to determine an appropriate countercyclical buffer is provided in an analytical paper published by the Bundesbank.

BaFin also takes recommendations by the Financial Stability Committee (Ausschuss für FinanzstabilitätAFS) and the European Systemic Risk Board (ESRB) into account when determining the countercyclical capital buffer.

Institution-specific countercyclical capital buffer

Institutions must factor the relevant value for Germany into their calculations for the institution-specific countercyclical capital buffer and apply this to the total significant credit risk exposures in Germany.
Institutions that have significant credit risk exposures in other countries must also take the countercyclical capital buffer applicable in those countries into consideration. Significant credit risk exposures include all credit risk exposures specified in section 36 of the German Solvency Regulation (SolvabilitätsverordnungSolvV); in principle, this includes all credit risk exposures towards the private sector. The individual (institution-specific) countercyclical capital buffer is calculated as the weighted average of the capital buffer in Germany and abroad. The institutions must then maintain this buffer as a percentage of their total risk exposure amount pursuant to Article 92(3) of the Capital Requirements Regulation (CRR) 2 in their Common Equity Tier 1 capital.

Current countercyclical capital buffer in Germany

Based on the current risk situation, in addition to the development of the credit-to-GDP gap and the supporting indicators, BaFin has decided that it is appropriate to maintain the rate of 0.75% for the first quarter of 2024 as of 1 February 2024.

This decision is based on the following reasons:

The credit-to-GDP gap calculated under the national method is currently 0.28 percentage points [PP] (Q3 2023). This implies a buffer guide of 0%. Thus, the credit-to-GDP gap decreased further from 2.48PP (Q1 2023) and 1.40PP (Q2 2023). Under the standardised method, the credit-to-GDP gap for the most recent available quarter is 1.56PP (Q2 2023). The corresponding buffer guide is also 0%.

Credit-to-GDP ratio, trend and gap

Credit-to-GDP ratio, trend and gap The graphic shows the credit-to-GDP ratio, trend and gap according to the national method and the associated buffer guide. The scale on the left applies to the credit-to-GDP ratio and trend. The scale on the right is relevant to the credit-to-GDP gap and the buffer guide. The scales represent the credit-to-GDP gap as a percentage and in percentage points BaFin Credit-to-GDP ratio, trend and gap

Alongside the credit-to-GDP gap calculated under the national and standardised method, a series of supporting indicators are also taken into consideration by BaFin.

Even though the financial cyclical risks abated recently, substantial vulnerability in the German banking system persist due to the build-up of risks during the last years. The risk level is still elevated. Significant overvaluations of residential real estate persist, despite the price reductions at the current state. The amount of credit to households and companies is considerably elevated compared to its long-time average.

Adding to that the weak economic outlook with pessimistic forecasts for 2024. Rising bankruptcies and credit losses must be expected in the real economy. The wars between Russia and Ukraine and in the Middle East lead to a high uncertainty in many economic and financial areas. At present, it is not possible to assess the economic impact of the war and the sanctions on the German economy and the finance system with enough certainty. The evolvement is closely monitored.

The values and brief descriptions of the key indicators can be found here.

Overview – historical capital buffers

Currently applicable0,75%
DateLevelApplicable fromNote
31.01.20220.75%01.02.2023Replaces general administrative act dated 31.03.2020
31.03.20200%01.04.2020Replaces general administrative act dated 28.06.2019
28.06.20190.25%01.07.2020Build-Up cancelled in 2020. Replaced by general administrative act dated 31.03.2020
28.12.20150%01.01.2016Initial assessment

Footnotes

  1. 1 As of January 1st 2021 CRD V.
  2. 2 As of January 1st 2021 CRR II.

Additional information

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