Countercyclical Capital Buffer (CCyB)

The Countercyclical Capital Buffer (CCyB) is part of the Basel III regulatory capital framework. In essence it is a mechanism to build up additional capital during periods of excessive credit growth when risks of system-wide stress are observed to be growing markedly. This capital can then be “released” when the credit cycle turns to absorb losses and enable the banking system to continue lending in the subsequent downturn.

The CCyB requirement is expressed as a percentage of an authorized institution (AI)’s risk-weighted assets and has to be met with Common Equity Tier 1 capital (CET1) (the highest quality regulatory capital in terms of loss absorption).

Latest Applicable CCyB for Hong Kong

(updated on 14 October 2019) 

Currently in effect 2.0%

Whilst the CCyB requirement remains in place, it takes effect as an extension of an AI’s Capital Conservation Buffer. This means that AIs will not breach their continuing authorization criteria should their levels of CET1 capital fall within the extended zone, but they will be subject to restrictions on distributions of earnings for so long as they do not meet the extended buffer requirement.

Whilst different national authorities impose their own capital requirements, the Basel Committee on Banking Supervision (BCBS) has established a jurisdictional reciprocity mechanism for the CCyB. In order to maintain a level playing field between domestic and cross-border banks, each national authority is responsible for ensuring that the banks incorporated in their jurisdiction calculate buffer requirements on the basis of the CCyB in place in the jurisdictions where they have private sector credit exposures.

Basel III provides for implementation of the CCyB from 1 January 2016. To implement the measure locally, the HKMA has amended the Banking (Capital) Rules to incorporate provisions for the imposition of capital requirements arising from the operation of the CCyB, as well as from the Capital Conservation Buffer which also goes into effect from 1 January 2016.

Guidance

Notes for Reference of Document(s):
X-X-N / X-N = SPM Module Code, CIR = Circulars, N.N / N.N.N = Guideline No, FAQ = Frequently Asked Questions
 

CCyB Notified to the HKMA by Overseas Jurisdictions

(No notification received to date)

Announcements by the HKMA regarding Applicable Jurisdictional CCyB in Overseas Jurisdictions

(No announcement issued to date)

Last revision date : 16 October 2019