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Financial Stability Committees and the Basel III Countercyclical Capital Buffer

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Listed:
  • Rochelle M. Edge

    (Federal Reserve Board)

  • J. Nellie Liang

    (Brookings Institution)

Abstract

We evaluate how a country’s governance structure for macroprudential policy affects its use of the Basel III countercyclical capital buffer (CCyB). We find that stronger governance raises the likelihood of a country increasing its CCyB. The probability of increasing the CCyB is higher in countries with stronger financial stability committees (FSCs), defined by those with tools and voting processes. However, most countries have not set up strong FSCs. The probability is even higher under an alternative governance structure where the FSC or ministry of finance has direct authority to set the CCyB. This is perhaps because setting the CCyB involves establishing a new macrofinancial analytical process to regularly evaluate emerging systemic risks and allows these entities with new responsibilities to influence the process. In addition, credit growth has substantial effects on the likelihood of increasing the CCyB, while the credit-to-GDP gap is not significant.

Suggested Citation

  • Rochelle M. Edge & J. Nellie Liang, 2022. "Financial Stability Committees and the Basel III Countercyclical Capital Buffer," International Journal of Central Banking, International Journal of Central Banking, vol. 18(5), pages 1-53, December.
    • Handle: RePEc:ijc:ijcjou:y:2022:q:5:a:6
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    Cited by:

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    2. Oliver Hülsewig & Armin Steinbach, 2024. "Banking Regulation and Sovereign Default Risk: How Regulation Undermines Rules," CESifo Working Paper Series 11190, CESifo.

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    More about this item

    JEL classification:

    • H11 - Public Economics - - Structure and Scope of Government - - - Structure and Scope of Government
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • P16 - Political Economy and Comparative Economic Systems - - Capitalist Economies - - - Capitalist Institutions; Welfare State

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