The Financial Policy Committee’s approach to setting the countercyclical capital buffer

The Bank of England (BoE) has published an updated version of its policy statement as regards the approach the Bank’s Financial Policy Committee (FPC) is taking to setting the countercyclical capital buffer (CCyB) for institutions and investment firms. The CCyB was implemented in 2015 in response to the global financial crisis to manage systemic risks that may arise from the anticipation or realization of losses in the banking sector and to counteract any subsequent shortcomings in credit supply.
The revised policy statement now includes the FPC’s practical experience and insights gained from implementing the CCyB during various shock periods, including those originating externally, such as the COVID-19 pandemic.
#### The statement describes
– what the CCyB is and how it is used;
– the scope of firms subject to the CCyB;
– the computation methodology to derive a CCyB for individual institutions and firms and the factors that are considered in the computation;
– the factors that the Committee considers in choosing an adequate CCyB policy;
– the process the Committee applies for determining a specific rate, including how it assesses developments in financial vulnerabilities and the resilience of banks’ balance sheets to potential shocks; and
– the process of communicating the FPC’s decisions and actions in this context.