Macro-prudential policies for bank capital 

The Central Bank has a range of macro-prudential policy instruments relating to bank capital. These policy instruments are provided for within the Capital Requirements Directive and the Capital Requirements Regulation. The range of policy instruments reflects the variety of potential sources of systemic risk facing the financial system.

  • The countercyclical capital buffer is a time varying capital requirement, which aims to promote a sustainable provision of credit to the economy by making the banking system more resilient and less pro-cyclical.
  • Buffers for systemically-important institutions aim to reduce the probability of failure of a systemically important institution, commensurate with the greater impact that the failure of these institutions would have on the broader economy or financial system.
  • Macro-prudential measures in relation to risk weights on real estate exposures: The provisions within Articles 124 and 164 of the CRR look to ensure that, from a financial stability perspective, the capital requirements of the banking system relating to exposures fully secured by mortgages on immovable property adequately reflect the underlying risks.
  • The systemic risk buffer (SyRB) is a flexible instrument which can be used to address sources of systemic risks that are not covered by the other buffers. The SyRB can be used to target specific sources of risk and therefore can vary across institutions or sets of institutions as well as across subsets of exposures.
  • Article 458 of the CRR confers designated authorities with the power to take action across a range of measures – including additional own funds requirements, enhanced disclosure and liquidity requirements, as well as higher risk weightings for certain exposure classes.

The Central Bank is the designated authority for these instruments in Ireland, a responsibility that is shared with the European Central Bank under the Single Supervisory Mechanism Regulation (Article 5).

The Central Bank has set out its strategy for deploying these instruments in its framework for macro-prudential capital.

FAQs on the capital framework