FPC's Incoming Countercyclical Capital Buffer | A Wider Impact Than First Thought

The Financial Policy Committee (FPC) of the Bank of England has confirmed that it plans to activate the Countercyclical Capital Buffer (CCyB) in the near future, perhaps as early as March 2016. The FPC announced the move in its Financial Stability Report published on 1 December 2015.

The introduction of the CCyB may come as something of a surprise for UK banks. Only three other jurisdictions in the world (Norway, Sweden and Hong Kong) have already applied this measure. This also makes the UK by far the largest financial centre to introduce a CCyB requirement.

As its name suggests, the CCyB is designed to require banks to set aside capital in prosperous trading periods which they can later use to absorb losses in difficult conditions. The FPC's report suggests it is aiming for a 1% buffer during the 'post-crisis' period, which would be phased in in 0.25% increments. It would then relax the buffer if economic conditions deteriorate, allowing banks to absorb losses