September 08, 2016

Federal Reserve Board approves final policy statement detailing framework for setting Countercyclical Capital Buffer

For release at 4:00 p.m. EDT

The Federal Reserve Board on Thursday released a policy statement detailing the framework the Board will follow in setting the Countercyclical Capital Buffer (CCyB) for private-sector credit exposures located in the United States. The CCyB 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 the risk of above-normal losses is elevated. 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 policy statement provides background on the range of financial-system vulnerabilities and other factors the Board may 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. Because economic and financial risks are constantly evolving, the range of indicators and models that the Board may consider is likely to change over time.

In response to comments, the final policy statement clarifies that the Board expects that the CCyB will be activated when systemic vulnerabilities are meaningfully above normal and that the Board generally intends to increase the CCyB gradually. The final policy statement also emphasizes that the Board expects to remove or reduce the CCyB when the conditions that led to its activation abate or lessen and when the release of CCyB capital would promote financial stability. The Board generally would expect to provide notice to the public and seek comment on the proposed level of the CCyB as part of making any final determination to change the CCyB.

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 Board Vote to approve the policy statement was unanimous.

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Last Update: September 08, 2016