Fynsa
The first-quarter Financial Policy Meeting was held this week, prior to the publication of the Financial Stability Report for the same period. On this occasion, the decisions made at that meeting did not go unnoticed: the Council decided, for the first time, to activate the Countercyclical Capital Requirement (CCR) at a rate of 0.5% of banks’ risk-weighted assets, with a one-year implementation period. According to some estimates, this would amount to US$1.5 billion.
However, I noticed that not many people were familiar with this tool. In fact, I realized that several people hadn't even marked the RPF on their calendars. So, let's address some of your questions.
First, Financial Policy Meetings are held at least twice a year, with the first one taking place in the first half of 2022 (on May 17). In other words, it is a relatively new forum. It is worth noting that this is the third such meeting to be held. At these meetings, the Bank’s Financial Policy Division team will present a proposal on the RCC to the board, based on a series of analyses, which will also have the approval of the CMF.
Second, the purpose of the RCC is to act as a capital “buffer” to be available in the event of adverse scenarios, at which point that buffer is released, helping to mitigate the impacts of an abrupt credit crunch. Therefore, as is evident, the RCC must be activated before the negative shock in question occurs; if it were activated at the same time, it would lose its countercyclical nature and, in fact, would worsen the very situation it is intended to prevent. Like any decision, it entails benefits and costs, and it is part of the board’s assessment to weigh them, while also recognizing that the decision is made in a context of uncertainty.
Third, the activation of the RCC has been criticized for being a decision lacking transparency and for not being supported by mathematical models. In this regard, we can point out that the information available to support this decision is not very different from that available when the Central Bank makes decisions regarding the TPM. Moreover, the decision is made one day before the publication of the Financial Stability Report, a fairly comprehensive document that specifically analyzes risks from that perspective. However, it must also be considered that economic policy decisions—particularly monetary policy decisions—have a quantitative component, but also a qualitative and judgmental one, as indicated in all documents regarding the Central Bank’s operations and its models. In this instance, the activation of the RCC was reportedly based on external risks stemming from the banking situation in the U.S. and other developed countries. The probability of these risks occurring is considered low, but their potential impacts are very high.
Finally, echoing what has been stated subsequently by the relevant authorities and institutions, the amount and terms reported should not disrupt current lending, since a significant number of banks have sufficient buffers to cover the RCC without having to increase their capital.
So you won't be caught off guard, the announcement for the next RPF will be published on November 7.
