Carney announces new capital requirement for banks

Mark Carney said that the countercyclical buffer would currently remain at zero, but could rise to 1%, equivalent to around £10 billion in total.

Carney announced that individual firms’ requirements will be reviewed in the first quarter of next year, before deciding the appropriate setting of the buffer rate in March.

Mark Carney said:

"The FPC is today making clear its intention to use the countercyclical capital buffer to ensure capital in the system is commensurate with risks that will inevitably vary over time.

"Like other buffers, the countercyclical buffer is there to absorb losses in stress, enabling banks to continue to support the real economy and to avoid amplifying any shocks.

"Unlike other buffers, the countercyclical buffer is explicitly time-varying. It will be flexed up and down as risks wax and wane in order to ensure the banking system can withstand stress without restricting the supply of credit to the real economy.

"By moving early, before risks are elevated, the FPC expects to be able to vary the countercyclical capital buffer gradually. Active use of the counter-cyclical buffer means a more efficient capital structure as the system won’t be capitalised to withstand high-risk conditions at all times.

"This is something the FPC already explicitly recognised when setting the basic leverage ratio requirement at 3% - a lower requirement than would have been the case without active use of the counter-cyclical buffer.

"With today’s announcement, the basic amount of capital our system requires is settled. UK banks are already most of the way there, even though they have until 2019 to comply in full. In the first three quarters of 2015 alone, UK banks improved their CET1 capital ratios by a full 100 basis points, which is more than the shortfall to 2019.

"The new framework will differentiate between minimum capital standards that must be met at all times and buffers that are there to be used in stress. And for the first time it will separate the capital required to insure against macro-prudential risks from that needed for idiosyncratic firm risks."