Releasing the CCyB to support the economy in a time of stress

Giorgia De Nora, Eoin O'Brien and Martin O'Brien ()
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Giorgia De Nora: Central Bank of Ireland
Eoin O'Brien: Central Bank of Ireland

No 1/FS/20, Financial Stability Notes from Central Bank of Ireland

Abstract: This note outlines the rationale underlying the release of the Countercyclical Capital Buffer (CCyB) in Ireland in the light of the recent COVID-19 developments. The COVID-19 outbreak presents an exceptional shock, triggering the materialisation of potential challenges for financial stability. An active use of macroprudential policy, and in particular the release of the CCyB, allows the banking system to absorb the impact of this shock. In doing so, it limits the scope for the banking system to amplify the shock to the detriment of the real economy, by facilitating banks maintaining a sustainable supply of credit to the economy in the challenging times ahead. We discuss how this particular policy response fits in the Central Bank’s CCyB framework, how it interacts with other prudential policy measures, and the size of capital relief and potential additional credit supply capacity it affords.

Date: 2020-04
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