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CS Professional · Banking and Insurance - Laws and Practice · Risk Management in Banks and Basel Accords

Basel III introduced a Countercyclical Capital Buffer (CCyB). Which is the purpose of this buffer?

The Countercyclical Capital Buffer requires banks to build additional capital during periods of excessive credit growth, so that it can be released to absorb losses in a downturn. It is a macroprudential add-on, not a substitute for minimum capital or a pricing control.

  1. ATo fund the deposit insurance premium of the bank
  2. BTo require banks to build extra capital in periods of excessive credit growth so it can be drawn down in downturnsCorrect
  3. CTo replace the minimum CET1 requirement during a recession
  4. DTo cap the lending rates charged by banks

Explanation

The CCyB is a macroprudential tool that makes banks build capital when system-wide credit growth is excessive, protecting the banking sector and allowing release in stress. It is an addition to, not a replacement for, minimum capital, and it has nothing to do with premiums or lending rates.

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