What is the Countercyclical Capital Buffer?

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Countercyclical Buffer Rate & Countercyclical Capital Buffer

The Countercyclical Capital Buffer is an amount of capital a firm will have to set aside in relation to a firm's exposure in other jurisdictions, the aim of which is to avoid a breach of minimum capital requirements. It is often shortened in reference to CCyB or CCB.

Firms will be required to work out the proportion of their exposures in other jurisdictions and from this determine the amount of CET1 that is required for their Countercyclical Capital Buffer.

Firm’s will have to calculate their own Countercyclical Capital Buffer based upon their total risk exposure multiplied by the average Countercyclical Buffer Rate for the jurisdictions where they have exposure.

The Countercyclical Buffer Rates for different jurisdictions are as advised by the Bank of England.

What is the difference between the Countercyclical Buffer and the Capital Conservation Buffer?

Whilst the Countercyclical Buffer works on a similar basis to the Capital Conservation Buffer, its percentage is variable rather than fixed, this being calculated according to an average of country specific buffer rates weighted in accordance with the firm’s exposure to those countries.

COREP Reporting: Jurisdictional Risk

COREP Template C 9.04 is used to report the proportion of a firm’s exposures in other jurisdictions with a separate sheet required to be completed for each country.

Previously COREP Template C 9.03 was used to report the proportion of a firm’s exposures in other jurisdictions. Template C 09.04 replaced C 09.03 for reporting periods ended 31 December 2016 onwards.

Who is affected by the Countercyclical Capital Buffer?

The requirement for Countercyclical Capital Buffer and a number of the associated consequences will not only apply to Banks, but also to some Investment Firms subject to IFPRU. The investment firms that will be affected are both Full Scope (IFPRU 730K) and Limited Activity (IFPRU 125K) firms that are too large to benefit from IFPRU’s ‘SME exemption’ and are thus required to implement the CRD IV buffer requirements.

If you would like to discuss any aspect of your COREP Reporting Requirements we would be happy to hear from you.

The Countercyclical Capital Buffer is capital a firm will have to set aside in relation to exposure in other jurisdictions.

The new capital buffers - the Countercyclical Buffer and the Capital Conservation Buffer - took effect from 1st January 2016

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If you should need any assistance in completing your firm’s COREP Returns, we can help. To find out more, click here.

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