Featured Product

    BCBS Issues Guiding Principles to Operationalize Sectoral CCyB

    November 27, 2019

    BCBS published guiding principles for the operationalization of a sectoral countercyclical capital buffer (SCCyB). The guiding principles are intended to support the implementation of a SCCyB on a consistent basis across jurisdictions. The guiding principles are defined by tailoring the broad-based CCyB principles on a sectoral basis. The guiding principles are not included in the Basel standards and are only applicable for the jurisdictions that choose to implement them voluntarily.

    The SCCyB is a tool that can be used to complement the CCyB under Basel III. While additional capital requirements of a bank following the activation of CCyB depend on total risk-weighted assets, the SCCyB would allow national authorities to temporarily impose additional capital requirements that directly address the build-up of risks in a specific sector. The impact of a SCCyB would depend on the exposure of a bank to a targeted credit segment (such as residential real estate loans). Targeted tools such as the SCCyB may be effective to aid in building resilience early and in a specific manner, to more efficiently minimize unintended side effects, and may be used more flexibly than broad-based tools. The guiding principles for operationalization of a SCCyB cover the following aspects:

    • Objectives—In taking buffer decisions, national authorities should be guided by the primary objective of the SCCyB, namely to ensure that the banking sector in aggregate has the capital on hand to help maintain flow of credit in the economy without its solvency being questioned, when faced with losses related to the unwinding of sectoral cyclical imbalances.
    • Target segments—National authorities should define a small number of target segments. These segments should be potentially significant from a financial stability perspective and prone to cyclical imbalances. If jurisdictional reciprocity is deemed important, then, to facilitate voluntary reciprocation, the target segment should be defined in a way that ensures its replicability by jurisdictions other than the home jurisdiction.
    • Interaction with the Basel III CCyB—Depending on the situation, national authorities may wish to either activate the SCCyB or the Basel III CCyB, or to activate both buffers simultaneously. An activation of the SCCyB instead of the Basel III CCyB should be based on an assessment demonstrating that imbalances are confined to a specific credit segment. When national authorities consider switching between the SCCyB and the Basel III CCyB and vice versa, a smooth transition should be ensured. This may include allowing both buffers to be activated simultaneously, in which case national authorities should ensure that the adding up of buffer rates does not result in double counting of risk.
    • Indicators for Guiding SCCyB Decisions—National authorities should identify a transparent set of indicators that have the ability to act as early warning indicators for sectoral imbalances in their home countries and are associated with an increase in system-wide risk in the financial system.
    • Calibration—National authorities should ensure an adequate calibration of the tool. An adequate calibration is key that the SCCyB can achieve its objectives.
    • Release—The decision of the national authorities to promptly release the SCCyB when sectoral cyclical risks materialize should allow banks to absorb losses and maintain lending to the real economy. When sectoral cyclical risks do not materialize but are judged to recede more slowly, a gradual release of the buffer may be more appropriate.
    • Communication—National authorities should integrate their decision-making on SCCyB into their strategy for communicating their decisions on the Basel III CCyB. As part of this strategy, they should establish a transparent communication on their assessment of broad-based versus more targeted cyclical systemic risks in the financial system to key stakeholders and the public (overall risk assessment).


    Related Links

    Keywords: International, Banking, CCyB, SCCyB, Basel III, Macro-Prudential Tools, Systemic Risk, RWA, Sectoral CCyB, Regulatory Capital, BCBS

    Featured Experts
    Related Articles

    APRA Publishes Results of Climate Risk Self-Assessment Survey

    The Australian Prudential Regulation Authority (APRA) has published the findings of its latest climate risk self-assessment survey conducted across the banking, insurance, and superannuation industries.

    August 04, 2022 WebPage Regulatory News

    ACPR Publishes Updates Related to CRD IV and Covered Bonds

    The French Prudential Supervisory Authority (ACPR) published a notice related to the methods for calculating and publishing prudential ratios under the Capital Requirements Directive (CRD IV) and the minimum requirement for own funds and eligible liabilities (MREL).

    August 03, 2022 WebPage Regulatory News

    BIS Paper Contributes to Debate on Regulating NBFIs and Big Techs

    The Financial Stability Institute (FSI) of the Bank for International Settlements recently published a paper proposing a framework for classifying financial stability regulation as either entity-based or activity-based.

    August 03, 2022 WebPage Regulatory News

    EIOPA Publishes Guidance on Climate Change Scenarios in ORSA

    The European Insurance and Occupational Pension Authority (EIOPA) published the risk dashboard based on Solvency II data and the final version of the application guidance on climate change materiality assessments and climate change scenarios in the Own Risk and Solvency Assessment (ORSA).

    August 02, 2022 WebPage Regulatory News

    EBA and ECB Respond to Proposals on Sustainability Disclosures

    The European Banking Authority (EBA) and the European Central Bank (ECB) published their responses to the consultations of the International Sustainability Standards Board (ISSB) and the European Financial Reporting Advisory Group (EFRAG) on sustainability-related disclosure standards.

    August 01, 2022 WebPage Regulatory News

    BIS Report Notes Existing Gaps in Climate Risk Data at Central Banks

    A Consultative Group on Risk Management (CGRM) at the Bank for International Settlements (BIS) published a report that examines incorporation of climate risks into the international reserve management framework.

    July 29, 2022 WebPage Regulatory News

    EBA Publishes Multiple Regulatory Updates for Regulated Entities

    The European Banking Authority (EBA) published the final guidelines on liquidity requirements exemption for investment firms, updated version of its 5.2 filing rules document for supervisory reporting, and Single Rulebook Question and Answer (Q&A) updates in July 2022.

    July 29, 2022 WebPage Regulatory News

    EIOPA Issues SII Taxonomy and Guide on Sustainability Preferences

    The European Insurance and Occupational Pensions Authority (EIOPA) published Version 2.8.0 of the Solvency II data point model (DPM) and XBRL taxonomy.

    July 29, 2022 WebPage Regulatory News

    EESC Opines on Proposals on CRR and European Single Access Point

    The European Union published, in the Official Journal of the European Union, an opinion from the European Economic and Social Committee (EESC); the opinion is on the proposal for a regulation to amend the Capital Requirements Regulation (CRR).

    July 29, 2022 WebPage Regulatory News

    HM Treasury Publishes Multiple Regulatory Updates in July 2022

    HM Treasury published a draft statutory instrument titled “The Financial Services (Miscellaneous Amendments) (EU Exit) Regulations 2022,” along with the related explanatory memorandum and impact assessment.

    July 29, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8423