Understanding Basel III, What Is Different After January 2016

Understanding Basel III, What Is Different After January 2016

The German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht – BaFin) has for the first time set a countercyclical capital buffer for Germany, with effect from 1 January 2016. <br /><br />At present, the buffer is set at 0% because the indicators examined currently do not reveal any excessive lending in Germany.<br /><br />Institutions must factor the relevant value for Germany into their calculations for the institution-specific countercyclical capital buffer, applying the total significant credit risk exposures in Germany.<br /><br />Institutions having made significant loans in other countries must factor in the countercyclical capital buffer applicable in those countries on a pro rata basis. <br /><br />The individual (institution-specific) countercyclical capital buffer is calculated as the weighted average of the capital buffer in Germany and abroad. <br /><br />The institutions must then maintain this buffer as a percentage of their total risk exposure amount in their common equity tier 1 capital.<br /><br />Going forward, BaFin will review on a quarterly basis whether the value applicable in Germany is appropriate in light of the current risk situation and lending trend and will adjust the buffer as necessary. <br /><br />It will conduct its review on the basis of analyses and data provided by the Deutsche Bundesbank. <br />The European Central Bank is involved in the decision-making process through the Single Supervisory Mechanism (SSM). <br /><br />Moreover, BaFin takes into account the recommendations of the Financial Stability Commission (Ausschuss für Finanzstabilität – ASF).<br /><br />Background<br />In times of excessive credit growth, banks are required to build up an additional capital buffer. <br />This buffer may be used up in times of crisis and used to mitigate losses. <br />This usually amounts to between 0% and 2.5% and can be set in 0.25 percentage-point increments.<br /><br />Enjoy the newsletter!