Capital Conservation Buffer and Countercyclical Capital Buffer

This Chapter discusses the regulatory, legislative and institutional framework for two capital-based macroprudential instruments, i.e. the Capital Conservation Buffer (hereinafter: CCoB) and the Countercyclical Capital Buffer (hereinafter: CCyB). At the outset, a brief historical background sheds light on the circumstances that led to the introduction of the two abovementioned buffers internationally. The main emphasis of the Chapter is placed on the Basel III-inspired EU legislative provisions on capital requirements, which introduced the CCoB and the CCyB for the first time across Member States. The specific EU legislative provisions of Directive 2013/36/EU pertaining to these two buffers are further analysed along with the relevant amendments introduced in 2019 by means of Directive (EU) 2019/878. The common elements, key distinctive features, design and operational framework of the CCoB and the CCyB in the EU are presented in more detail. Greater attention is inevitably paid to the cyclical and dynamic CCyB, reflecting its more complex setup and discretionary application, compared to the non-cyclical, fixed requirement for the CCoB. Furthermore, a closer look is taken at the allocation of relevant competences and particular tasks assigned to national and supranational authorities/bodies also in light of the major institutional shift marked by the creation of the Banking Union. In closing, a very brief look is offered into the state of play of the two buffers, shortly touching upon relevant macroprudential measures in response to the COVID-19 pandemic crisis, which albeit fall outside the scope of this Chapter, along with some considerations on future prospects, particularly in light of recent discussions on the need to enhance the EU macroprudential framework