A macroprudential capital adequacy requirement for a capital cushion to allow and compensate for procyclical effects.
Countercyclical buffers are imposed under Basel III within a range of 0% to 2.5%, subject to national supervisors' determinations.
The idea is that the buffer is:
- Built up during times when economic conditions are favourable; and
- Reduced during a downturn, to free up capital.
The rate initially set by the UK's Financial Policy Committee (FPC) for the UK exposures of institutions incorporated in the UK was 0%.
Sometimes written 'CounterCyclical Buffer'.