Countercyclical capital in Spanish banks: A review in the context of capital buffers
Countercyclical buffers
Fecha: noviembre 2024
Ángel Berges, Jesús Morales and Javier Restoy
SEFO, Spanish and International Economic & Financial Outlook, V. 13 N.º6 (November 2024)
The Bank of Spain recently announced significant changes to the countercyclical capital buffer (CCyB) as part of a process of ongoing convergence with the European supervisory standards and at the recommendation of the European Systemic Risk Board (ESRB), the institution tasked with issuing macroprudential supervisory guidelines in the eurozone. Framed by the move to increase the buffer rate from 0% at present to 1% in two stages (the first by year-end 2025 and the second by year-end 2026), the new buffer will feature a much more important modification – the requirement to set the neutral buffer rate at 1%, from where it can be increased, but also the possibility of releasing the buffer when warranted by an episode of crisis. These modifications of the CCyB are just the first step in a higher-level review of capital buffers, framed by dual micro and macroprudential dimensions, designed to reinforce banking system resilience. The changes highlight the need to recalibrate Spain’s CCyB, taking into account potential tensions between micro and macro perspectives, to allow for greater adaptability in response to the economic cycle. As well, going forward, stress tests should be a crucial part of the toolkit for linking the two perspectives, particularly when determining and redefining the P2G requirement. Nevertheless, the tests existing weaknesses, such as the static balance sheet assumption or the failure to consider the probability of occurrence of the scenario analysed, should be addressed by reforms in order to deliver both financial stability and economic efficiency.