Towards Positive Neutral Countercyclical Capital Buffer Rates in the JVI Region

Wednesday, June 28, 2023 at 14:00-15:30 Vienna time (CEST) 

Panelists
Mr. Erlend Nier, International Monetary Fund
Mr. Aleksandre Ergeshidze, National Bank of Georgia
Ms. Rhiannon Sowerbutts, Bank of England
Ms. Evangelia Rentzou, European Central Bank

Moderator
Mr. Maximilian Fandl, Joint Vienna Institute

Beyond the introduction of countercyclical capital buffer (CCyB) frameworks as part of the adoption of Basel III, several countries in the JVI Region, such as the Czech Republic, Lithuania, Estonia, Armenia, and Georgia, have in recent years introduced methodologies to ensure the CCyB rate is set at a positive level in a standard risk environment. Outside the JVI region, several advanced economies have moved towards positive neutral CCyB frameworks as well, including the United Kingdom as the first country to introduce a positive neutral CCyB rate in 2016. This JVI webinar brought together leading international experts from the IMF, Bank of England, National Bank of Georgia, and European Central Bank, with hands-on policy experience on the topic. 

Erlend Nier from the IMF’s Monetary and Capital Markets Department welcomed the international momentum towards positive neutral CCyB rates and recalled the usefulness of releasable buffers in previous stress situations. Countries could proceed with the implementation of the positive neutral CCyB irrespective of readings of the credit gap and even when monetary policy tightened unless conditions for a CCyB release were met or the system was otherwise capital constrained. In the second presentation, Rihannon Sowerbutts explained how the Bank of England had arrived at the neutral rate of 2% and shared some insights on the experience with the operation of the positive neutral CCyB framework since its inception in 2016. Turning to the JVI region, Aleksandre Ergeshidze provided the background on the recent adoption of a positive neutral CCyB rate by the National Bank of Georgia, contrasting the approach with a previously stronger reliance on credit-to-GDP gaps which had led to unchanged 0% CCyB rates ever since 2017. In the fourth presentation, Evangelia Rentzou from the European Central Bank supported further macroprudential policy action by member states of the Single Supervisory Mechanism (SSM), including through the implementation of the positive neutral CCyB rate, which five SSM countries had already done at the time of the webinar. She also argued that a more harmonized approach across SSM countries would be desirable, among others with respect to the calibration and operationalization of the positive neutral CCyB rate and its interaction with other capital buffers such as the systemic risk buffer.

The presentations were followed by a lively Q&A session. Panelists argued that positive neutral CCyB rates could be useful complements to other sectoral and broad-based capital buffer requirements and were worth exploring by many central banks in the region. Clear communication about the CCyB framework with banks and the general public was deemed essential. At the same time, panelists did not consider the costs of implementing a positive neutral CCyB a major impediment in the current environment, taking into account favorable capital positions and bank profitability across the JVI region. 

Maximilian Fandl, Senior Economist, Joint Vienna Institute