Financial stability and macroprudential policy

Countercyclical capital buffer

Capital buffers are requirements additional to the microprudential capital requirements. They are designed to curb the growth of systemic risk and bolster institutions’ solvency so that they can absorb any losses should systemic risks arise.

As depicted in the figure, higher capital requirements make banks take actions (e.g. lower the volume of lending and raise rates, take on less risk) that moderate the economic cycle (consumption and investment) and financial asset prices. This, in turn, also moderates the credit cycle.

Note: See A. Estrada and J. Mencía (2021), “El cuadro de mandos de la Política Macroprudencial File PDF: Opens in a new window (377 KB)", Información Comercial Española, No 918, 2021. (Only available in Spanish).

The countercyclical capital buffer (CCyB) is activated during credit cycle upswings, increasing capital requirements to curb the development of systemic imbalances, raise banks’ solvency levels and thus improve their risk-absorbing capacity.

It is released (fully or partially) during credit cycle downturns to help mitigate the adverse impact of crises on the supply of credit to the real economy.

The instrument can be activated for credit exposures as a whole or for certain sectors where imbalances have been identified.

Its activation during economic booms incurs costs in terms of a loss of GDP growth. Yet this adverse effect is far outweighed by the benefits associated with reducing the likelihood and impact (in terms of GDP losses) of future crises.

Note: The solid blue and yellow lines depict the estimated impact in percentage points on the 5th and 50th percentiles of the conditional distribution of GDP growth, respectively. The dotted blue lines depict the 95% confidence bands. The analysis is conducted for a sample of the 28 EU Member States. For further details on the methodology see J. E. Galán (2020), “The benefits are at the tail: uncovering the impact of macroprudential policy on growth-at-riskOpens in a new window. Journal of Financial Stability, in press

Decisions on these instruments are made via a guided discretion procedure, that considers not only automatic rules, but also relies on quantitative indicators and relevant qualitative information.

Charts monitoring decisions on the countercyclical capital buffer (CCyB)

Credit-to-GDP gap and output gap

The benchmark quantitative indicator is the credit-to-GDP gap. The Banco de España also measures an adjusted credit-to-GDP gap to take into account the specific duration of the financial cycle in Spain. The output gap is also used. The chart depicts the path of these three variables.

Data download File CSV: Opens in a new window (7 KB)

Complementary indicators

The charts depict other complementary indicators that are also considered in CCyB decision-making (e.g. credit intensity; price gaps in the real estate sector and other measures of house price imbalances; the non-financial private sector’s debt service; and current account imbalances).

Data download File CSV: Opens in a new window (11 KB)