European Central Bank and European Systemic Risk Board publish report on positive neutral countercyclical capital buffer approaches adopted by 17 EEA countries

The European Central Bank and the European Systemic Risk Board published a joint report on how authorities in the European Economic Area are implementing “positive neutral” approaches to setting the countercyclical capital buffer (CCyB), noting that 17 EEA countries have adopted such an approach. The report frames positive neutral CCyB as a way to build releasable capital buffers earlier in the cycle, before cyclical systemic risks are clearly elevated, to support resilience and enable buffer release in stress. The report summarises adopting and non-adopting countries’ views, including perceived costs and benefits, calibration methods, conditions for buffer build-up and release, interactions with other capital instruments, buffer usability and reciprocity. It identifies three common features: the approach is presented as earlier activation of the existing CCyB rather than a new buffer, it is generally not expected to raise CCyB requirements at the peak of the cycle, and it typically does not need to be offset by lowering other requirements. Among the obstacles cited are concerns about overlaps with other tools, notably the systemic risk buffer, and a perceived lack of clarity in EU legislation, with the report pointing to clarifying the European macroprudential framework and reducing the prominence of the credit-to-GDP gap and other credit indicators in guiding CCyB decisions.