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How Do Regulators Set the Countercyclical Capital Buffer?

Author

Listed:
  • Bernhard Herz

    (University of Bayreuth)

  • Jochen Keller

    (University of Bayreuth)

Abstract

As part of the Basel III regulatory framework, the macroprudential countercyclical capital buffer (CCyB) was introduced to mitigate the procyclicality in the financial system. National designated authorities are supposed to set the CCyB based on a “guided discretion” approach that combines rulebased and discretionary elements. We identify a CCyB puzzle, as we do not find the credit-to-GDP gap, the recommended rule-based component of the CCyB, to be crucial for buffer decisions. Instead, designated authorities appear to base their CCyB decisions in a systematic way on the discretionary elements of the framework, namely the development of house prices and non-performing loans. We also find national institutional frameworks to be relevant for CCyB policies.

Suggested Citation

  • Bernhard Herz & Jochen Keller, 2023. "How Do Regulators Set the Countercyclical Capital Buffer?," International Journal of Central Banking, International Journal of Central Banking, vol. 19(3), pages 99-137, August.
    • Handle: RePEc:ijc:ijcjou:y:2023:q:3:a:3
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    References listed on IDEAS

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    1. Detken, Carsten & Weeken, Olaf & Alessi, Lucia & Bonfim, Diana & Boucinha, Miguel & Castro, Christian & Frontczak, Sebastian & Giordana, Gaston & Giese, Julia & Wildmann, Nadya & Kakes, Jan & Klaus, B, 2014. "Operationalising the countercyclical capital buffer: indicator selection, threshold identification and calibration options," ESRB Occasional Paper Series 5, European Systemic Risk Board.
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    Cited by:

    1. Martin Birn & Renzo Corrias & Christian Schmieder & Nikola Tarashev, 2023. "Banks' credit loss forecasts: lessons from supervisory data," BIS Working Papers 1125, Bank for International Settlements.

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    More about this item

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • 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

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