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Countercyclical Capital Buffer

Under Law 4261/2014 (Article 127), the Bank of Greece is responsible for setting the countercyclical buffer rate for Greece, on a quarterly basis, applicable as from the first quarter of 2016. Bank of Greece decisions setting the countercyclical capital buffer rate are made in agreement with the Hellenic Capital Market Commission.

The countercyclical capital buffer aims to address the procyclicality of credit growth and leverage, i.e. to ensure an appropriate level of credit growth and leverage in both the upward and the downward phase of the business cycle. The countercyclical buffer rate is set between 0% and 2.5% (exceeding 2.5% in exceptional circumstances) and is expressed as a percentage of the total risk exposure amount of institutions (credit institutions and investment firms) that are exposed to credit risk in Greece.

In an economic upturn, the setting of the countercyclical buffer rate at above 0% results in creating a capital stock beyond the minimum requirements in the context of microprudential supervision, thus achieving the prevention and mitigation of excessive credit growth and leverage. Conversely, in an economic downturn, reducing the countercyclical buffer rate can encourage the extension of credit to the real economy, thereby mitigating the impact of the recession.

By Executive Committee Act No. 55/18.12.2015, the Bank of Greece disclosed its methodology for setting the countercyclical buffer rate on a quarterly basis, in line with Recommendation ESRB/2014/1 of the European Systemic Risk Board. According to this methodology, the countercyclical buffer rate is set mainly on the basis of the calculation of the standardised credit-to-GDP gap, which reflects the deviation of the credit-to-GDP (Gross Domestic Product) ratio from its long-term trend. Further to this, the Bank of Greece examines a number of additional indicators to monitor the build-up of cyclical systemic risk. In particular, indicators are measures of: credit developments; potential overvaluation of property prices; private sector debt burden; the strength of bank balance sheets; potential mispricing of risk; and external imbalances.

Since 1 January 2016, the countercyclical buffer rate for Greece has been set at 0%, i.e. at the lowest possible level, and therefore does not affect the capital requirements for credit institutions and investment firms.

For the decisions of the Bank of Greece regarding the countercyclical capital buffer, click here.

The countercyclical capital buffer rates set for other EU Member States and for third countries can be found under related links.


 
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