Countercyclical Capital Buffer

The Countercyclical Capital Buffer is a financial tool used by banks to strengthen their resilience during economic cycles. When the economy is strong and lending increases, banks are required to hold extra capital to prepare for potential downturns. This buffer helps prevent excessive risk-taking during good times. Conversely, during a recession, the requirement can be lowered, allowing banks to lend more and support the economy. Essentially, it aims to stabilize the financial system by ensuring banks are better equipped to handle fluctuations in the economy.