The countercyclical capital buffer (CCyB) is a macroprudential policy instrument that aims to prevent or mitigate the build-up of cyclical systemic risks and ensure an appropriate level of credit growth and leverage in both the upward and the downward phase of the economic and financial cycle, as well as strengthening banking sector resilience.
The Bank of Greece assesses on a quarterly basis the intensity of cyclical systemic risk and the appropriateness of the CCyB rate for Greece and, if deemed necessary, sets or adjusts the CCyB rate.
In more detail, the setting of the CCyB rate above zero commences during the phase of the economic and financial cycle in which the level of risk is at a standard level, i.e. when risks are neither subdued nor particularly elevated in order to help credit institutions absorb any potential losses and ensure the smooth flow of financing to the real economy in the event of unexpected shocks. The CCyB rate is set by means of an Executive Committee Act of the Bank of Greece and is applicable 12 months at the latest from the date of its announcement. There is a gradual increase in the CCyB rate towards achieving the target rate for the positive neutral CCyB (PN CCyB) rate, as this is determined in a Bank of Greece Executive Committee Act.
In the upward phase of the economic cycle, the setting of the CCyB rate takes into account the target rate for the PN CCyB in a standard risk environment. Once the cyclical systemic risk assessment by the Bank of Greece indicates a build-up of cyclical systemic risks, the Bank of Greece decides, at its discretion, to increase the countercyclical capital buffer above the target rate for the PN CCyB in a standard risk environment with a view to mitigating the build-up of cyclical systemic risks and preventing and mitigating excessive credit growth and leverage.
During the downward phase of the economic cycle or in the event of shocks, the CCyB’s partial (reduction) or full release (setting to zero) may help encourage the supply of credit, thereby contributing to the smooth flow of financing to the real economy. The CCyB’s partial or full release takes immediate effect.
During the phase in which the economy or the financial system recovers from severe endogenous or exogenous shocks, or in the wake of a systemic crisis, the CCyB rate is set at zero to encourage the supply of credit and thereby ensure the smooth flow of financing to the real economy. The CCyB rate remains at zero until the intensity of cyclical systemic risks is assessed to be at a standard level.
Stylised representation of the accumulation and release of the CCyB depending on the severity of cyclical systemic risks across the four phases of the economic and financial cycle:
Source: Bank of Greece.
The CCyB rate can be set between 0% and 2.5% (exceeding 2.5% in exceptional cases). It consists of CET1 capital and is expressed as a percentage of the total risk exposure amount of credit institutions in Greece. If a credit institution fails to fully meet the CCyB requirement, it is subject to restrictions on distributions of dividends, bonus payments and payments on Additional Tier 1 (AT1) instruments.
By means of Executive Committee Act 235/1/07.10.2024, the Bank of Greece laid down the implementation procedure for applying, and the methodology for setting, the CCyB rate in Greece and set the target rate for the PN CCyB in a standard risk environment. The quarterly assessment of the intensity of cyclical systemic risk and the appropriateness of the CCyB rate in Greece takes into account, inter alia, the standardised credit-to-GDP gap. This indicator reflects the deviation of the ratio of credit-to-GDP from its long-term trend. The Bank of Greece also takes into consideration certain additional indicators to monitor the build-up of cyclical systemic risk, more specifically, indicators on credit developments, private sector debt burden, potential overevaluation of property prices, soundness of credit institutions, risk pricing and external imbalances.
In this vein, by Executive Committee Act 235/2/07.10.2024 the Bank of Greece has set the CCyB rate for Greece at 0.25%, applicable from 1 October 2025.