FPC’s Announcement on the Countercyclical Capital Buffer – effective 27 June 2017
The Financial Policy Committee (FPC) has raised the UK Countercyclical Capital Buffer (CCyB) rate from 0% to 0.5% with binding effect from 27 June 2018 and signalled that it expects to increase the rate again to 1% at its November meeting.
The unexpected increase in CCyB rate was unveiled on 27 June 2017 in the FPC’s Financial Stability Report. In the report, the FPC expresses its concern about the rapid consumer credit growth which is “markedly faster than nominal household income growth”. By setting a higher CCyB rate, the FPC seeks to make banks more resilient to the risk of excessive consumer spending. The decision will have a one year implementation phase and the UK will join a small group of jurisdictions which sets non-zero CCyB rates:
Country | Current CCyB rate | Implementation date | Pending CCyB rate | Expected implementation date |
UK | 0% | 5 Jul 2016 | 0.5% | 27 Jun 2018 |
Hong Kong | 1.25% | 1 Jan 2017 | 1.875% | 1 Jan 2018 |
Norway | 1.5% | 30 Jun 2016 | 2% | 31 Dec 2017 |
Sweden | 2% | 19 Mar 2017 | - | - |
Czech Republic | 0.5% | 1 Jan 2017 | 1% | 1 July 2018 |
Iceland | 1% | 1 Mar 2017 | 1.25% | 1 Nov 2017 |
Slovakia | 0% | - | 0.5% | 1 Aug 2017 |
It should be noted that the institution-specific CCyB buffer rate is calculated as the weighted average of the national Countercyclical Capital Buffer rates applicable in the jurisdictions in which a bank has credit exposures (Article 140 of CRD). The change in the UK CCyB rate will most likely increase the institution-specific CCyB rate and subsequently your Countercyclical Capital Buffer.
What you need to do
In light of the announcement made yesterday, we suggest that you:
- recalculate your Countercyclical Capital Buffer and the resultant Tier 1 capital requirement;
- build your capital projections taking into consideration the possible further increase in the CCyB rate in November and update your ICAAP accordingly; and
- make sure your COREP returns are accurate and up to date.
Contacts
