Countercyclical capital buffer
The countercyclical buffer is one of the instruments available in Banco de Portugal’s macroprudential toolkit. It corresponds to an additional buffer of Common Equity Tier 1 capital that should be built up to protect the banking sector in periods when risks of system-wide stress are growing due to excessive credit growth. When risks materialize or recede, such an additional capital buffer ensures that the banking sector is better equipped to absorb losses and remain solvent while continuing to provide credit to the real economy.
Section III of title VII-A of the Legal Framework of Credit Institutions and Financial Companies sets the legal basis for the implementation of the countercyclical capital buffer in Portugal. In this regard, Banco de Portugal is responsible for setting and disclosing, on a quarterly basis, the countercyclical buffer rate that applies to all credit institutions and investment firms with credit exposures to the domestic private non-financial sector. The rate shall be set between 0% and 2.5% (of the total risk exposure amount), unless exceptional circumstances justify the setting of a higher rate.
The buffer rate for each institution, i.e. the “institution-specific countercyclical buffer rate”, is a weighted average of the countercyclical buffer rates that apply in the countries where the credit exposures of that institution are located. Buffer rates up to 2.5% must be mutually and automatically reciprocated if set by other EU/EEA Member States. If set by third countries authorities, buffer rates up to 2.5% must be recognised provided that the third country countercyclical capital buffer framework is deemed as equivalent by Banco de Portugal. When buffer rates set by other EU/EEA Member States or third countries are above 2.5%, Banco de Portugal will decide on their recognition on a case by case basis.
Credit institutions should apply a decision to raise the countercyclical capital buffer rate within 12 months, unless the Banco de Portugal establishes that the measure should be applied at an earlier date, where warranted by duly substantiated exceptional circumstances.
When announcing a cut in the rate, the Banco de Portugal also informs the institution about the indicative period during which no increase in the countercyclical capital rate is expected.
Countercyclical buffer rates relevant for exposures to foreign counterparties:
Material third countries for the Portuguese banking system:
2023-2024 List of material third countries (updated June 2023)
Tentative date for list update: 28 June 2024
ESRB Recommendations / Decisions