The European Systemic Risk Board (ESRB) has recommended that other European Economic Area (EEA) states reciprocate Norway’s capital requirements for banks. This pertains to the systemic risk buffer requirement and temporary risk weight floors for real estate exposures. Norway had increased its systemic risk buffer requirement from 3.0 to 4.5 percent in December 2019, and also adopted temporary risk weight floors for real estate exposures for two years. The ESRB had recommended in 2021 that relevant authorities reciprocate these measures.
In December 2022, the Ministry of Finance in Norway requested the ESRB to issue a new recommendation, including lowering the materiality threshold for the systemic risk buffer. The ESRB has now published changes to its recommendation, stating that other EEA countries should reciprocate the systemic risk buffer requirement within three months for banks above the threshold value of NOK 5 billion. Foreign banks not using the Advanced IRB Approach should meet the requirement from year-end 2023, as Norwegian non-IRB banks were given a one-year extended transitional arrangement.
This recommendation is particularly relevant for Nordic banks with activities in Norway, as it could increase capital requirements for foreign banks operating in Norway, contributing to financial stability and a level playing field in the Norwegian banking market. The ESRB’s recommendation is considered a minimum standard for reciprocation of other states’ macroprudential measures, as acknowledged in a Memorandum of Understanding signed by Nordic authorities in 2016 regarding cross-border banking activities.