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Switzerland decides to activate countercyclical capital buffer

The Swiss government has accepted Swiss National Bank’s (SNB) proposal to activate the countercyclical capital buffer (CCB) for specific market segments, to enable the banking sector to deal with excessive credit growth.

As per the proposal, the government has set a deadline of 30 September 2013 for the lenders to shore up additional capital level of 1% of their associated risk-weighted positions.

Due to heavy growth in both bank credit and real estate prices over the last several years, SNB sees threats for the stability of the banking sector, as well as the Swiss economy.

The SNB has decided to monitor closely the developments in the mortgage and real estate markets, and will regularly reassess the need to either adjust the level of the CCB, or deactivate it.

Mortgage lending volumes and residential real estate prices increased sharply, despite continued weak economic growth and the introduction of revised self-regulation rules for mortgage financing in July 2012.

"Given the sustained period of extremely low interest rates, it is unlikely that the strong momentum in the mortgage and real estate markets will ease off in the near future", the bank said in a statement.

Designed to be applicable on both owner-occupied and rental residential properties, the rule will provisionally increase the capital requirements for mortgage loans on residential property in Switzerland.