APRA has spared Australian banks and credit unions another regulatory capital hit after deciding to keep the recently developed countercyclical capital buffer on hold.Despite a sharp correction in the housing market and bleak forecasts for economic growth, the prudential regulator announced on Tuesday that it would maintain the countercyclical capital layer (otherwise known as CCyB) at zero for all deposit taking institutions."APRA could have chosen to utilise the countercyclical capital buffer as a means of building resilience in the banking system," said APRA chairman, Wayne Byres. "However, APRA took the view that the better course of action was to address, through targeted measures, the underlying concern - the erosion in lending standards driven by strong competitive pressures amongst housing lenders."APRA's assessment is that, collectively, its interventions achieved the necessary objective of strengthening lending standards and reducing a build-up of systemic risk in residential mortgage lending."APRA introduced the CCyB capital component in 2016 as a tool to strengthen the resilience of Australian deposit takers ahead of heightened systemic risks such as economic downturns and housing market corrections.Although the CCyB is technically a component of the regulatory capital framework, the regulator has never raised the requirement above zero since it was introduced.While Byres' commentary suggests that the rate will remain on hold for some time, the recent flow of negative economic data could force APRA to activate the buffer if the domestic economy deteriorates.National Australia Bank's latest monthly business survey, released yesterday, indicates that the domestic economy is under pressure following difficult trading conditions for most industries in December.The survey found that business conditions fell by nine index points during the month - the biggest fall recorded since the global economic crisis in 2008."The deterioration in conditions in the month was driven by declines across trading, profitability and employment and was relatively broad-based across states and industries," NAB's economists wrote."Conditions remain particularly weak in the retail industry which reports further ongoing deterioration."NAB economists found that the decline in conditions had been broad-based, except for Tasmania where a slight improvement was recorded.The downbeat findings of the survey fuelled negative sentiment among Australian investors on Tuesday, with share prices of each of the major banks suffering heavy losses.ANZ scrip copped the biggest pummelling after closing down 61 cents or 2.3 per cent to $25.58.