The Central Bank has announced a further measure in order to support the economy, firms and households through the economic shock arising from COVID-19.

It is releasing a capital buffer that banks are required to hold in order to support the continued provision of credit to households and businesses.

This buffer, the Counter Cyclical Capital Buffer (CCyB), is a time-varying capital requirement and will be reduced from 1% to 0% no later than 2 April.

The rationale for building a positive CCyB rate early in the economic cycle is that the buffer is there to be released, when risks materialise, the Central bank says.

The goal of the CCyB is to support the sustainable flow of credit to the economy, in good times and also in bad, the Central Bank says.

Supply of credit

“The release of the CCyB at this point in time is appropriate and will support the supply of credit to households and firms during the downturn,” the bank says.

The Central Bank expects banks to use the positive effects of these measures solely in support of the economy and not for dividend distributions.

It is the Central Bank’s intention that no subsequent increase would be announced before the first quarter of 2021 at the earliest.

Consistent with the Central Bank’s CCyB framework, any subsequent decisions will depend on prevailing macroeconomic and financial conditions.

Adverse shocks

The banking system has in recent years built up its capital and liquidity buffers, strengthening its resilience to adverse shocks, precisely for periods like these.

The capital buffers are there to be used, to support the businesses, consumers and the wider economy in this difficult time.

The Central Bank will continue to monitor this situation closely, as part of the continued assessment of the impact of COVID-19 on the economy, businesses and households.

“Our focus is on ensuring monetary and financial stability and that the financial system operates in the best interests of consumers and the wider economy,” the Central bank says.

Evolving situation

“We are engaging with the financial sector to ensure that firms are responding effectively to the evolving situation.

The Central Bank will meet with the Banking & Payments Federation Ireland (BPFI) and the five domestic retail banks today to discuss this and the broader response to the challenges presented by COVID-19 to their customers.