The Central Bank has decided to release a capital buffer that banks are required to hold in order support the continued provision of credit to households and businesses, by the banking system, during this challenging time. 1 This buffer, the Counter Cyclical Capital Buffer (CCyB), is a time-varying capital requirement and will be reduced from 1% to 0% no later than 2 April 20202.
The rationale for building a positive CCyB rate early in the economic cycle is that the buffer is there to be released, when risks materialise. The goal of the CCyB is to support the sustainable flow of credit to the economy, not just in good times, but also in bad. The release of the CCyB at this point in time is appropriate and will support the supply of credit to households and firms during the downturn.
The Central Bank expects banks to use the positive effects of these measures solely in support of the economy and not for dividend distributions.
It is the Central Bank’s intention that no subsequent increase would be announced before the first quarter of 2021 at the earliest. Consistent with the Central Bank’s CCyB framework, any subsequent decisions will depend on prevailing macroeconomic and financial conditions.
The banking system has in recent years built up its capital and liquidity buffers, strengthening its resilience to adverse shocks. This resilience is precisely for periods like these. The capital buffers are there to be used, to support the businesses, consumers and the wider economy in this difficult time.
The Central Bank will continue to monitor this situation closely, as part of the continued assessment of the impact of COVID-19 on the economy, businesses and households. Our focus is on ensuring monetary and financial stability and that the financial system operates in the best interests of consumers and the wider economy. We are engaging with the financial sector to ensure that firms are responding effectively to the evolving situation.
The Central Bank will meet with the Banking & Payments Federation Ireland (BPFI) and the five domestic retail banks tomorrow to discuss this and the broader response to the challenges presented by COVID-19 to their customers.
2 This decision is subject to notification to the ECB according to Article 5.1 of the SSM Regulation