Release Date: December 21, 2015
For release at 3:30 p.m. EST
The Federal Reserve Board on Monday announced it is seeking public comment on a proposed policy statement detailing the framework the Board would follow in setting the Countercyclical Capital Buffer (CCyB).
The buffer is a macroprudential tool that can be used to increase the resilience of the financial system by raising capital requirements on internationally active banking organizations when there is an elevated risk of above-normal losses in the future. The CCyB would then be available to help banking organizations absorb shocks associated with declining credit conditions. Implementation of the buffer could also help moderate fluctuations in the supply of credit.
The proposed policy statement provides background on the range of financial-system vulnerabilities and other factors the Board could take into account as it evaluates settings for the buffer, including but not limited to, leverage in the nonfinancial sector, leverage in the financial sector, maturity and liquidity transformation in the financial sector, and asset valuation pressures. The Board also would monitor many financial and economic indicators and consider using different models to evaluate risks to financial stability. For example, the Board could consider indicators of the risk-taking, performance, and the financial condition of large banks, and combinations of the private nonfinancial credit-to-GDP (Gross Domestic Product) ratio with price trends in residential and commercial real estate. Because economic and financial risks are constantly evolving, the range of indicators and models that the Board would consider could change over time. The CCyB applies to banking organizations that are subject to the advanced approaches capital rules, generally those with more than $250 billion in assets or $10 billion in on-balance-sheet foreign exposures, and to any depository institution subsidiary of such banking organizations. The CCyB is calculated based on private-sector credit exposures located in the United States. Once fully phased in, the buffer could range from 0 percent of risk-weighted assets in times of moderate financial-system vulnerabilities to a maximum of 2.5 percent when vulnerabilities are significantly elevated. Banks that fail to meet the buffer would face restrictions on capital distributions and the payment of discretionary bonuses.
In addition to releasing the framework for comment, the Board also voted to affirm the CCyB amount at the current level of 0 percent. The Board consulted with staff of the Federal Deposit Insurance Corporation and Office of the Comptroller of the Currency in making this determination and in developing the policy statement. Should the Board decide to modify the CCyB amount in the future, banking organizations would have 12 months before the increase became effective, unless the Board establishes an earlier effective date. Today's actions are part of prudent planning by the Board and provide more guidance for a macroprudential tool that will be phased in beginning in 2016. Comments on the proposed policy statement are invited until February 19, 2016.Regulatory Capital Rules: The Federal Reserve Board’s Framework for Implementing the U.S. Basel III Countercyclical Capital Buffer (PDF)