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National countercyclical capital buffer

The Russian macroprudential regulation applies the national countercyclical capital buffer for banks’ capital adequacy ratios (such instrument as the countercyclical buffer is used by all regulators pursuant to the Basel III requirements).

The Bank of Russia makes decisions on setting national countercyclical capital buffer based on the analysis of a wide range of indicators characterising the state of the credit cycle. The level of the banking sector’s systemic risks associated with the state of the credit cycle is determined based on the monitoring of credit activity dynamics (including in individual segments), as well as banks’ and their borrowers’ financial positions. These indicators are analysed together with expected changes in macroeconomic conditions and other financial indicators, namely credit gap indicators. The credit gap is a deviation of the actual ratio of credit (adjusted for foreign currency revaluation) to GDP from the long-term trend of this ratio. If the credit gap is negative, the situation can be characterised as a downward phase of the credit cycle. When the credit gap is positive, this is an upward phase of the credit cycle.

The national countercyclical capital buffer is needed to enhance the stability of the banking system by accumulating the capital buffer during the periods of surging credit supply (an upward phase of the credit cycle) and, accordingly, releasing (using) this buffer during economic stress periods. A decision on using the capital buffer during periods of uncertainty in financial markets should help maintain banks’ credit activity reducing the adverse impact of destabilising factors on the real sector. That said, the national countercyclical capital buffer does not aim to manage the dynamics of business cycles, although it can help smooth out their fluctuations.

The national countercyclical capital buffer is set as a percentage of risk-weighted assets and formed of a credit institution’s common equity Tier 1 capital (equity capital, stock surplus, and retained earnings).

The Bank of Russia started to set the national countercyclical capital buffer since 1 January 2016.

Press releases on national countercyclical capital buffer

Department responsible for publication: Financial Stability Department
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Last updated on: 18.05.2022