9/20/2023 0 Comments See finance 1.1.5![]() ![]() ![]() In addition to the primary purpose of strengthening the institutions' resilience, a possible side benefit is that the actual build-up of the countercyclical capital buffer in good times may dampen credit growth, thereby reducing the build-up of systemic risks. Hence, the countercyclical capital buffer aims to supplement the structural minimum requirement. The buffer should contribute to ensuring that the institutions are resilient when systemic risks materialise. In addition to this, the countercyclical capital buffer will be built up and released in step with the development in systemic risks that vary over time. The structural minimum requirement applies in both good times and bad and aims to ensure that the institutions are basically sufficiently well-capitalised. The countercyclical capital buffer is an addition to the structural minimum requirement. Releasing the buffer should discourage the institutions from tightening their credit standards and reducing the credit supply to such an extent as to cause a credit crunch. In that situation, the buffer can be released, and the institutions may use the capital to e.g. Ideally, the buffer should be built up before the tide turns to ensure that the institutions are more resilient when the financial system is exposed to stress. The purpose of the buffer is to facilitate the scope for the credit institutions to maintain suitable credit extension in periods of stress in the financial system. These are typically periods of very high credit growth. In order to strengthen the credit institutions' resilience, the countercyclical capital buffer may be implemented during periods of increasing systemic risk. the Minister decides whether the buffer is to be activated and sets the buffer rate on credit exposures in Denmark. In Denmark, the Minister for Business and Growth is the designated authority for the countercyclical buffer, i.e. The Capital Requirements Directive was implemented in Danish law via a revision of the Danish Financial Business Act implemented in March 2014. The countercyclical capital buffer was implemented in EU legislation via the Capital Requirements Directive, CRD IV. ![]()
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