ECB’s de Cos: ‘Might Be a Case for Increasing Releasable Buffers’

2 October 2023

By David Barwick – FRANKFURT (Econostream) – European Central Bank Governing Council member Pablo Hernández de Cos on Monday indicated receptiveness to implementing macroprudential policy more flexibly, in particular so as to release buffers in times of stress and thus support lending.

In a speech at a conference of the Banco de Portugal in Lisbon, a text of which was published on the website of the Banco de España, which he heads, de Cos said that signs of a positive relationship between lending and how much banks held in capital beyond minimum regulations and buffers suggested ‘a case for increasing releasable buffers … and for defending a more flexible use’ of macroprudential policy ‘considering its potential for helping other policies in macroeconomic stabilisation.’

More and more jurisdictions are thus adopting positive business cycle-neutral rates of countercyclical capital buffers (CCyB), said de Cos, who also chairs the Basel Committee on Banking Supervision.

‘Under this approach, authorities aim for a positive CCyB rate when risks are judged to be neither subdued nor elevated’, he said. ‘Authorities that have introduced positive cycle-neutral CCyB rates have found it helpful for banks in their jurisdictions to have capital buffers in place that can be released in the event of sudden shocks, including those unrelated to the credit cycle, such as the impact of the COVID-19 pandemic.’

Such a practice can mitigate the reluctance of some jurisdictions’ banks to deviate from minimum regulatory buffers in periods of stress, negatively impacting lending, in the absence of explicit regulatory permission loosening buffers, he said.