Recommendation FMSB/5/2020: guidance on applying the countercyclical capital buffer (CCyB)

In line with Article 23a para. 1 of the Austrian Banking Act, the Financial Market Stability Board (FMSB) recommends that the Financial Market Authority (FMA) leave the countercyclical capital buffer (CCyB) unchanged at a rate of 0% of risk-weighted assets from April 1, 2021. Although the main indicator guiding decisions from a technical perspective, namely the credit-to-GDP gap, which reflects credit volume relative to GDP, is positive, this result is based on the unusually strong decline in GDP growth (−3.3% between the first and second quarters of 2020). Domestic credit, in contrast, did not record comparably excessive growth rates (+1% between the first and second quarters of 2020). According to Baba et al. (2020)¹, Drehmann et al. (2011)² and Drehmann et al. (2014)³, there is no case for changing the CCyB mechanistically in line with a given credit-to-GDP gap, in particular when this gap is caused by a negative economic cycle.
 

¹ How Should Credit Gaps Be Measured? An Application to European Countries. IMF-Working Paper No. 20/6.
² Anchoring countercyclical capital buffers: the role of credit aggregates. BIS Working Papers.
³ The credit-to-GDP gap and countercyclical capital buffers: questions and answers. BIS Quarterly Review.