Fynsa
The first quarter Financial Policy Meeting was held during the week, prior to the publication of the Financial Stability Report for the same period. On this occasion, the decisions taken at that meeting did not go unnoticed: the Board decided, for the first time, to activate the Countercyclical Capital Requirement (CCR), in the amount of 0.5% of banks' risk-weighted assets, with a one-year deadline for implementation. According to some estimates, this would reach US$1.5 billion.
However, I noticed that not many were familiar with this instrument. In fact, I noticed that several did not even have the RPF on their calendars. So, let's answer some of your questions.
Firstly, the Financial Policy Meetings are held at least twice a year, with the first one taking place in the first half of 2022 (May 17). In other words, it is a relatively new instance. It is worth mentioning that this is the third one to be held. In these instances, the Bank's Financial Policy Division team will present the Board with a proposal on the CCR, based on a series of analyses, which will also be approved by the FMC.
Secondly, the purpose of the CCR is to act as a "buffer" of capital so that it is available in the event of negative scenarios, at which point the buffer is released, thus mitigating the impact of an abrupt credit crunch. Therefore, as is evident, the activation of the CCR must be prior to the occurrence of the negative shock in question, since, if it were to occur at the same time, it would lose its countercyclical nature and, in fact, would worsen the situation it is intended to avoid. Like any decision, it brings benefits and costs, and it is part of the board's evaluation to consider them, assuming that it is taken in a context of uncertainty.
Third, the activation of the CCR has been criticized for not being a very transparent decision and for not having the mathematical models to support it. In this regard, we can point out that the information available to support this decision is not very different from the information available at the time the Central Bank makes decisions regarding the TPM. Moreover, it is taken one day before the publication of the Financial Stability Report, a very complete document that analyzes the risks from that point of view. However, we must also consider that economic policy decisions, particularly monetary policy, have a quantitative component, but also a qualitative and judgmental one, as indicated in all documents on the functioning of the Central Bank and its models.. On this occasion, the activation of the CCR would have been based on the external risks caused by the banking situation in the U.S. and other developed countries. Its probability of occurrence is considered low, but its potential effects are very high.
Finally, and echoing what has been stated a posteriori by the relevant authorities and institutions, the amount and terms reported should not be disruptive elements in current credit granting, since a significant number of banks have sufficient buffers to cover the CCR without having to increase their capital.
So as not to catch you off guard, the announcement of the next RPF will be published on November 7.
