Macroprudential measures

Macroprudential measures are intended to make the financial system as a whole more resilient to crises as a way of protecting the real economy more effectively. Capital buffer requirements rank among the most important measures available to regulators. Other instruments are also available in Germany to address systemic risk originating in the real estate market.

Capital buffers

First introduced under Basel III, capital buffers are generally there to enhance banks’ loss-absorbing capacity. Depending on their specific design, capital buffers aim to build up capital either for cyclical reasons or to reflect the structural importance of an institution for the financial system. In the first case, the idea is for banks to build up capital cushions when the economy is in good shape, which they can then use to maintain their provision of credit in times of crisis. A capital buffer designed in this way can therefore have a countercyclical effect. In the second case, in addition to strengthening institutions’ loss absorbency capacity, the aim is to avoid contagion risks to the financial system as a result of the failure of institutions of systemic relevance (“too big to fail”) and to prevent possible costs of a rescue of the institutions by the state. A side effect is to avoid unjustified financing cost advantages for the institutions due to their systemic importance.

Unlike the prudential measures that can potentially be taken if an institution falls short of the minimum own funds requirements, failure to meet the buffer requirements cannot be a reason for the withdrawal of an institution’s banking licence, but merely to restrictions on the distribution of dividends, bonuses and the like.

Based on the recommendations of the Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS) developed four capital buffers:

  1. Capital conservation buffer
  2. Countercyclical capital buffer
  3. Buffer for global systemically important institutions
  4. Buffer for domestic systemically important institutions

Furthermore, the European Union (EU) introduced an additional capital buffer in the form of the systemic risk buffer. These five buffers were enshrined in the German Banking Act (Kreditwesengesetz – KWG) when the Capital Requirements Directive (CRD IV) was transposed into German law. Only Common Equity Tier 1 capital (CET 1) may be used to meet the buffer requirements, in addition to the minimum capital requirements (see overview). Within the Single Supervisory Mechanism (SSM), the European Central Bank is to be involved in macroprudential measures, pursuant to Article 5 of the SSM Regulation.

Capital conservation buffer (Section 10c of the Banking Act)

The capital conservation buffer (CCB) is intended to improve banks’ general loss-absorbing capacity. Its level is set at 2.5% of an institution’s risk-weighted assets (pursuant to Article 92(3) of the Capital Requirements Regulation (CRR)).

Countercyclical capital buffer (Section 10d of the Banking Act)

The countercyclical capital buffer (CCyB) is primarily intended to counteract lending constraints in the event of a crisis. As well as having a positive effect on the loss absorbency capacity of institutions, the introduction of the CCyB can act to dampen excessive credit growth and therefore prevent the economy from overheating.

At the first signs of excessive credit growth in the country’s economy, the national competent authority (in Germany, this is the Federal Financial Supervisory Authority – BaFin) sets the buffer at a rate of up to 2.5%. Other jurisdictions should also prescribe a capital buffer for their banks up to this buffer rate for exposures located in a jurisdiction that has introduced the CCyB (known as mandatory reciprocity). Buffer rates above 2.5% are possible, in principle, though reciprocity is only voluntary for the supervisory authorities of other jurisdictions.

Information on the current setting of the buffer rate in Germany can be found on the BaFin website. The European Systemic Risk Board (ESRB) additionally keeps a list of the CCyB rates for the individual European jurisdictions. The BCBS keeps a similar list at the global level, which also includes the relevant third countries.

Based on the regional distribution of their lending, institutions calculate their institution-specific buffer rate as the weighted average of the buffer rates applicable domestically and abroad. Should signs of a crisis emerge, the competent authority can directly reduce the buffer rate so that banks have to cut back their lending as little as possible.

Capital buffer for global systemically important institutions (G-SII) (Section 10f of the Banking Act)

The primary aim of the G-SII buffer is to make large, highly interconnected and internationally active banks more resilient by requiring them to hold additional capital in reserve. Institutions deemed to be G-SII are identified each year on the basis of international criteria, and the latest list of designated banks can be found on the FSB’s website. The more systemically important the institution, the higher its additional capital buffer requirement will be within a range of 1% to 3.5%. The buffer must be met at the consolidated level.

Capital buffer for other systemically important institutions (O-SII) (Section 10g of the Banking Act)

The aim of the capital buffer for O-SII is much like that for G-SII. The focus here is on banks that are important to the functioning of their country’s national economy and which are therefore nationally systemically important. The Basel Committee intentionally allows national authorities to exercise discretion in the methodology they use for identifying O-SII. BaFin and the Deutsche Bundesbank are jointly responsible for identifying German O-SII, taking note of the relevant guidelines published by the European Banking Authority (EBA). BaFin keeps a list of the institutions currently designated as O-SII on its website. The individually calibrated buffer can be imposed at the consolidated, sub-consolidated or individual bank level. If the buffer rate exceeds 3%, the EU Commission must agree. When an institute is considered systemically important both nationally and globally it just has to apply the higher of the two buffers (G-SII or O-SII).

Systemic risk capital buffer (Section 10e of the Banking Act)

The systemic risk buffer (SyRB) is intended to counteract systemic risks which could lead to a disruption with serious effects on the domestic financial sector or the domestic real economy. The SyRB is imposed not on individual institutions but on certain groups of institutions or even all groups of institutions. The buffer can not only be imposed for domestic exposures, exposures in an EU Member State or exposures in a third country but also in a targeted manner on a sectoral basis for industry-specific risk positions or sub-groups thereof. It is thus possible to use several systemic risk buffers for different risk positions at the same time. The buffer rate is not capped, but the minimum level is 0.5%. An authority must notify the ESRB and, if necessary, the competent authorities of any Member States affected in advance of its intention to impose the buffer, and is only permitted to do so if the CRR or the Banking Act do not specify any other instrument for the identified case. A total buffer rate of between 3% and 5% has to be notified to the European Commission. A total buffer rate higher than 5% requires authorisation by the European Commission. In Germany, BaFin sets the SyRB.

Minimum capital ratios and capital buffers

Capital buffers (in Common Equity Tier 1)

Systemic risk buffer (SyRB)according to national specification (min. 0.5%)*
Capital buffer for systemically important institutions (G-SII/O-SII)Maximum of G-SII buffer (1% up to 3.5 % **) and O-SII buffer according to national specification**
Countercyclical capital bufferin general 0% up to 2.5% **
Capital conservation buffer2.5% **

Minimum capital ratios

Total capital8% **
Tier 1 capital6% **
Common Equity Tier 1 capitalmin. 4.5% **
* as of risk weightes assets to wich the SyRB applies
** as of total risk weighted assets

Further macroprudential instruments harmonised at the European level (Section 48t of the Banking Act)

There are other macroprudential measures besides the capital buffer requirements. These include additional own funds requirements, enhanced disclosure and liquidity requirements, as well as higher risk weightings for certain exposure classes. Article 458 of the CRR permits EU Member States to impose such measures as soon as systemic risk or risks to the real economy are identified. Before an EU member state takes such a measure it has to notify the EU-Commission and the ESRB and to explain why other macroprudential measures are not suitable. The European Council may reject the measure at proposal of the EU-Commission under certain conditions (weighing the benefits), if the measure would have negative effects on the European internal market.

National macroprudential instruments to address systemic risk originating in the real estate market (Section 48u of the Banking Act)


BaFin can impose restrictions on credit institutions to curtail the granting of loans for the construction or purchase of domestic residential real estate, if and to the extent that such restrictions are deemed necessary to counteract any disruption to the functioning of the domestic financial system or threat to financial stability in Germany. This can be necessary in particular in cases where prices of residential real estate and the granting of new loans for the construction or purchase of residential real estate rise sharply and change significantly when a loan is granted.

The granting of loans can be restricted by:

  • capping the quotient of a borrower’s total debt in a real estate loan and the market value of the residential real estate when the loan is granted;
  • setting a final deadline for the repayment of a certain fraction of a loan or, for bullet loans, setting a maximum maturity.

In imposing the above-mentioned restrictions, BaFin can also determine, amongst other things, the percentage of new business for residential real estate financing by a credit institution which is not subject to the restrictions imposed (free quota) and the loan amount up to which one or more of the restrictions do not apply (de minimis threshold).