The countercyclical buffer is one of several capital adequacy requirements under Basel III. The purpose of the countercyclical buffer is to make banks more resilient to loan losses by requiring them to maintain a countercyclical capital buffer when financial imbalances are building up or have been built up. The Ministry of Finance, Norges Bank and the Norwegian FSA have all for a long time warned about signs of financial imbalances in the Norwegian mainland economy. In line with the advice from Norges Bank, the countercyclical buffer requirement for Norwegian banks will be 1 % of the banks’ risk-weighted assets. At the time the countercyclical buffer has been implemented in other jurisdictions, Norwegian banks shall apply local requirements for their risk-weighted assets in those countries.
If Norwegian authorities see further signs of financial imbalances in the Norwegian economy, the countercyclical buffer requirement may be further increased. Contrary, if a severe downturn in the economy causes major bank losses the countercyclical buffer may be released.
The decision-making basis which Norges Banks has provided along with its advice, is published in its Monetary Policy Report with financial stability assessment, and can be found here.