The countercyclical capital buffer (CCyB) is designed to preventively strengthen the financial system’s resilience to cyclical risks. The CCyB amount is based on the level of cyclical systemic risk within the financial system. Determining this involves analysing whether and to what extent lending trends are moving counter to the economic cycle. During good times (when cyclical systemic risks are low but rising), banks should build up additional capital with which they can absorb losses during bad times. In this respect, the countercyclical capital buffer is a cyclical premium on banks’ core capital. If buffer requirements are reduced in times of crisis, the freed-up capital is immediately available for lending. Consequently, the CCyB is intended to counteract restrictions in lending that would otherwise worsen the crisis. In addition to its positive effect on banks’ loss-absorbing capacity, the CCyB can dampen excessive credit growth and thus prevent economic overheating.

The CCyB is enshrined in section 10d of the Banking Act and in the Solvency Ordinance (Solvabilitätsverordnung), transposing the European Capital Requirements Directive (CRD). The competent national authority – in Germany, this is BaFin – sets the buffer rate in the case of rising cyclical systemic risks. The Bundesbank prepares analyses of cyclical risks for this purpose. The CCyB can be set in steps of 0.25 percentage points, generally up to a maximum of 2.5%. However, a rate above 2.5% is possible if the supervisory authority considers this necessary. Banks in other countries within the European Economic Area must also apply the CCyB to the risk positions they hold in relation to Germany up to a rate of 2.5% – and vice-versa (mandatory reciprocity). For buffer rates above 2.5% reciprocity is recommended.

Countercyclical capital buffer rate