The Board of Governors of the Federal Reserve System (the "Board") unanimously approved a final policy statement that describes the framework that the Board will follow in setting the U.S. countercyclical capital buffer ("CCyB"). The CCyB is a tool that allows the Board to gradually raise capital requirements for banking organizations that are subject to the advanced approaches capital rules, savings and loan holding companies and state member banks "when the risk of above-normal losses is elevated." By requiring institutions to hold a larger capital buffer during periods when systemic risk is increasing and reducing the buffer requirement as vulnerabilities diminish, the CCyB has the potential to moderate fluctuations in the supply of credit over time.
The final policy statement outlines the factors that the Board will use when setting the buffer, including leverage in the nonfinancial sector, leverage in the financial sector, maturity and liquidity transformation in the financial sector, and asset valuation pressures.
The final policy statement becomes effective on October 14, 2016.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.