Building on the Countercyclical Buffer Consensus: An Empirical Test

Countercyclical capital buffer (CCCB) has been incorporated in the Basel III framework with the aim of ensuring that banking sector capital requirements take account of the macro-financial environment in which banks operate. It is likely to address pro-cyclicality in the banking business and its adverse feedback effect on the real economy. The countercyclical capital buffer is designed to build-up buffer during good periods, which could then be used during the economic downturns. Unlike other components of capital requirements, the countercyclical buffer incorporates considerable judgment of the relevant authorities in the decision of the timing for the build-up, release and on the quantum of buffer implementation. So far however, not many economies, including those of SEACEN, have implemented the CCCB initiative or even established a framework. In view of the various stages of economic development, institutional frameworks and emerging nature of the markets, this study was undertaken with the main aim of looking at processes for the smooth implementation of the CCCB as well as to encourage further research in this area. This study, therefore, analyses the progress made so far in advanced countries and in the participating SEACEN economies. It also highlights the challenges such as data availability and methodological issues relating to CCCB. It proposes steps and recommendations that could help smoothen the implementation of CCCB in these economies. This research project, which comprises the integrative chapter and subsequent chapters by the participating SEACEN member central banks/monetary authorities, would hopefully set the stage for further debate and deliberation on crucial issues, which would facilitate the implementation of the CCCB in SEACEN economies.