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
    News

    EBA Proposes Standards for IRRBB Reporting Under Basel Framework

    The European Banking Authority (EBA) proposed implementing technical standards on the interest rate risk in the banking book (IRRBB) reporting requirements, with the comment period ending on May 02, 2023.

    January 31, 2023 WebPage Regulatory News
    News

    FED Issues Further Details on Pilot Climate Scenario Analysis Exercise

    The U.S. Federal Reserve Board (FED) set out details of the pilot climate scenario analysis exercise to be conducted among the six largest U.S. bank holding companies.

    January 17, 2023 WebPage Regulatory News
    News

    US Agencies Issue Several Regulatory and Reporting Updates

    The Board of Governors of the Federal Reserve System (FED) adopted the final rule on Adjustable Interest Rate (LIBOR) Act.

    January 04, 2023 WebPage Regulatory News
    News

    ECB Issues Multiple Reports and Regulatory Updates for Banks

    The European Central Bank (ECB) published an updated list of supervised entities, a report on the supervision of less significant institutions (LSIs), a statement on macro-prudential policy.

    January 01, 2023 WebPage Regulatory News
    News

    HKMA Keeps List of D-SIBs Unchanged, Makes Other Announcements

    The Hong Kong Monetary Authority (HKMA) published a circular on the prudential treatment of crypto-asset exposures, an update on the status of transition to new interest rate benchmarks.

    December 30, 2022 WebPage Regulatory News
    News

    EU Issues FAQs on Taxonomy Regulation, Rules Under CRD, FICOD and SFDR

    The European Commission (EC) adopted the standards addressing supervisory reporting of risk concentrations and intra-group transactions, benchmarking of internal approaches, and authorization of credit institutions.

    December 29, 2022 WebPage Regulatory News
    News

    CBIRC Revises Measures on Corporate Governance Supervision

    The China Banking and Insurance Regulatory Commission (CBIRC) issued rules to manage the risk of off-balance sheet business of commercial banks and rules on corporate governance of financial institutions.

    December 29, 2022 WebPage Regulatory News
    News

    HKMA Publications Address Sustainability Issues in Financial Sector

    The Hong Kong Monetary Authority (HKMA) made announcements to address sustainability issues in the financial sector.

    December 23, 2022 WebPage Regulatory News
    News

    EBA Updates Address Basel and NPL Requirements for Banks

    The European Banking Authority (EBA) published regulatory standards on identification of a group of connected clients (GCC) as well as updated the lists of identified financial conglomerates.

    December 22, 2022 WebPage Regulatory News
    News

    ESMA Publishes 2022 ESEF XBRL Taxonomy and Conformance Suite

    The General Board of the European Systemic Risk Board (ESRB), at its December meeting, issued an updated risk assessment via the quarterly risk dashboard and held discussions on key policy priorities to address the systemic risks in the European Union.

    December 22, 2022 WebPage Regulatory News
    RESULTS 1 - 10 OF 8699