The Ministry of Finance has today decided to keep the level of the countercyclical capital buffer for banks unchanged. This is in line with the advice for Q3/16 from Norges Bank.
Each quarter, The Ministry of Finance shall make a decision on the level of the countercyclical buffer. The Ministry of Finance decided on the 18th June 2015 that banks shall hold a countercyclical buffer of 1,5 percent from the 30th of June 2016.
The purpose of the countercyclical capital buffer is to strengthen the financial soundness of banks and their resilience to loan losses in a future downturn and mitigate the risk that banks will amplify a downturn by reducing their lending. Banks should hold a countercyclical capital buffer when financial imbalances are building up or have built up. In the Norwegian economy, the sustained rise in household indebtedness and a sharp rise in real estate prices in recent years is a sign that financial imbalances have built up. House prices have risen sharply in recent months. High house prices could lead to increased household debt, and makes households more vulnerable.
In a letter from the 21th June 2016 Norges Bank advised the Ministry to keep the countercyclical buffer unchanged. Norges Bank’s decision basis is published in the Monetary Policy Report with financial stability assessment 3/16. The Financial Supervisory Authority has stated that the overall development of the real economy and the credit and real estate markets implies some increased risk of financial instability since the last assessment. The Financial Supervisory Authority concurs with Norges Bank’s advice.