Meeting of the Systemic Risk Council
The Systemic Risk Council has held its eighth meeting. The Council advices that the countercyclical capital buffer rate be set at 0 per cent. The Council sees no signs of systemic risks building up at present. The Council's observation about low interest rates and the risk of systemic risks building up is still relevant.
Advice on a countercyclical capital buffer rate of 0 per cent
The countercyclical capital buffer can be used in Denmark from 1 January 2015. The Council advices the Minister for Business and Growth that the buffer rate be set at 0 per cent at present. The method on which the Council's assessment is based is described in the memo "The countercyclical capital buffer".
The purpose of the buffer is to facilitate the scope for credit institutions to maintain suitable credit extension in periods of stress in the financial system. The buffer is first and foremost an instrument to increase the resilience of credit institutions. The buffer should not be regarded as an instrument to influence cyclical fluctuations. When the countercyclical capital buffer is introduced, the capital requirement for the credit institutions is increased in periods when systemic risks are building up, e.g. in periods of higher-than-normal credit growth. The Council expects lending growth to be affected only to a limited extent when the capital buffer is built up, but the credit institutions will be more robust if the financial system is exposed to stress. In that situation, the buffer requirement may be reduced, and the institutions may use the capital to, inter alia, absorb losses.
No signs of systemic risks building up, but the Council's observation about low interest rates is still relevant
Financial conditions are broadly unchanged since the Council's meeting in September. There are no signs of systemic risks building up at present.
Total credit outstanding is at a high level relative to GDP. The recent weak growth in lending by credit institutions continued in the 3rd quarter. There are still some signs of credit standards being eased for corporate customers due to the competitive climate among the institutions. As a whole, the banks have a customer funding surplus, and their liquid funds exceed current regulatory requirements by a good margin. The concentration of the banks' lending to individual industries was broadly unchanged in the 3rd quarter.
The Council's observation from September 2014 about low interest rates and the risk of systemic risks building up is still relevant. Long-term interest rates have declined further since September, and expectations of continued low interest rates in the years ahead may lead to increased risk-taking by credit institutions and borrowers. This may become particularly prevalent if the emerging Danish recovery gains momentum and the low imported interest rates become less compatible with the cyclical climate in Denmark.
In general, the Council monitors the build-up of systemic risks based on six areas, cf. the box. The Council's approach to monitoring is described in "Monitoring of systemic risks".