Recommendation FMSB/2/2021: guidance on applying the countercyclical capital buffer (CCyB)

The latest recommendation of the Financial Market Stability Board (FMSB) to the Financial Market Authority (FMA), in line with Article 23a para. 1 of the Austrian Banking Act, is to leave the countercyclical capital buffer (CCyB) unchanged at a rate of 0% of risk-weighted assets from October 1, 2021. The main indicator guiding decisions from a technical perspective, namely the credit-to-GDP gap, which reflects credit volume relative to GDP, is positive, but this result is based on the exceptionally strong decline in GDP growth (−5.5% between the fourth quarter of 2019 and the fourth quarter of 2020). At the same time, domestic credit did not record excessive growth rates (+2.7% between the same quarters). 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 business cycle. However, the FMSB points out that credit growth is high compared with GDP growth and is therefore being closely monitored. Should there be no signs of the credit-to-GDP gap narrowing despite domestic credit having returned to its growth path, the FMSB is increasingly likely to recommend that the CCyB be changed.
 

¹How Should Credit Gaps Be Measured? An Application to European Countries. IMF Working Paper No. 20/6.
²Anchoring countercyclical capital buffers: the role of credit aggregates. BIS Working Paper No. 355.
³The credit-to-GDP gap and countercyclical capital buffers: questions and answers. BIS Quarterly Review. March 2014.