Countercyclical capital buffer
The countercyclical capital buffer was introduced into international regulation for credit institutions after the financial crisis as part of a larger set of reforms to make the financial sector more robust.
The buffer shall be built in periods when risks in the financial system build up. This will typically be in periods of optimism, low risk perception, rising asset prices and lenient credit terms, such as was the case in the years leading up to the financial crisis. The goal is that the buffer is built up before risks materialise, for example, before the financial system is exposed to a negative shock. In periods of financial stress, the buffer is released and credit institutions can use the released capital to maintain adequate credit.