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Building on the Countercyclical Consensus: An Empirical Test

Author

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  • Saurabh Ghosh

    (Reserve Bank of India)

Abstract

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 challenges such as data availability and methodological issues relating to CCCB, based on the empirical findings for each of the participating economies. It proposes steps and recommendations that could help smoothen the implementation of CCCB in these economies. This Working Paper is derived from the integrative report of the research project on "Building on the Countercyclical Buffer Consensus: An Empirical Test." The research project paper with the integrative report and project team papers by the participating SEACEN member central banks/monetary authorities (forthcoming) sets the stage for further debate and deliberation on crucial issues, which would facilitate the implementation of the CCCB in SEACEN economies.

Suggested Citation

  • Saurabh Ghosh, 2015. "Building on the Countercyclical Consensus: An Empirical Test," Working Papers wp08, South East Asian Central Banks (SEACEN) Research and Training Centre.
    • Handle: RePEc:sea:wpaper:wp08
    as

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    File URL: https://www.seacen.org/publications/RePEc/702004-100364-PDF.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Basel III; Countercyclical Capital Buffer; Emerging Markets; Macroprudential Policy;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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