The countercyclical capital buffer (CCyB) is a macro-prudential policy tool where the capital requirement varies over time. In essence, the CCyB looks to ensure that banking sector capital requirements take account of the cyclical variations in the macro-financial risk environment.
By increasing capital requirements during cyclical upturns, when risks are increasing, the CCyB should enhance the resilience, or loss absorption capacity, of the banking sector. The subsequent release of the buffer, when risks materialise, should limit the potential for the banking sector to amplify risks in such circumstances. If minimum regulatory capital requirements were to result in a contraction in the supply of credit during such periods it could make the downturn worse.
The CCyB was one element of the global regulatory framework put forward by the Basel Committee on Banking Supervision (BCBS) in the aftermath of the financial crisis of the mid-to-late 2000s. It has been in operation across Europe since 2016 under the Capital Requirements Directive (CRD) IV.
In 2019, this was amended by the CRD V, which was transposed into Irish law in 2020 (Statutory Instrument No. 710/2020). In addition to banks, the CCyB applies to MiFID investment firms that are subject to the Capital Requirements Regulation and CRD V.