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Key Indicators, Reciprocity And Regulation Of The Countercyclical Capital Buffer In Indonesia

Author

Listed:
  • Bambang Pramono

    (Bank Indonesia)

  • Januar Hafidz

    (Bank Indonesia)

  • Justina Adamanti

    (Bank Indonesia)

  • Maulana Harris Muhajir

    (Bank Indonesia)

  • Muhammad Sahirul Alim

    (Bank Indonesia)

Abstract

The Countercyclical Capital Buffer (CCB) is one of the macroprudential policy instruments that is needed in Indonesia. In December 2010, the Basel Committee on Banking Supervision (BCBS) released guidelines for the national authorities in determining the size of the CCB. BCBS recommended the use of the ratio of broad credit to GDP gap as the key indicator in determining the size of the CCB rate and the period the CCB is effective with the lower limit (L)and the upper limit (H) standing at 2% and 10% respectively. However, the ratio of broad credit to GDP gap indicator is not appropriate for Indonesia because it is not able to identify excessive credit growth before a crisis occurs. Because of that, several other indicators are tested in this paper to determine which indicator is the most suitable given the state of Indonesia’s banking conditions and economy. The test results show that the banks’ ratio of broad credit to GDP gap is the most appropriate indicator with L and H of 3% and 6%, respectively. In adopting CCB policy, the matter of jurisdictional reciprocity warrants attention considering there are banks which operate internationally. The matter of reciprocity is closely related to how the CCB policy is implemented for branch offices of overseas banks (KCBA) and branch offices of domestic banks abroad (KCLN). Furthermore, because CCB policy will be implemented in Indonesia, a regulation needs to be devised concerning the requirement to form CCB as a reference for Bank Indonesia, the banking sector, and other stakeholders.

Suggested Citation

  • Bambang Pramono & Januar Hafidz & Justina Adamanti & Maulana Harris Muhajir & Muhammad Sahirul Alim, 2015. "Key Indicators, Reciprocity And Regulation Of The Countercyclical Capital Buffer In Indonesia," Working Papers WP/14/2015, Bank Indonesia.
    • Handle: RePEc:idn:wpaper:wp142015
    as

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    References listed on IDEAS

    as
    1. Filardo, Andrew & Genberg, Hans & Hofmann, Boris, 2016. "Monetary analysis and the global financial cycle: An Asian central bank perspective," Journal of Asian Economics, Elsevier, vol. 46(C), pages 1-16.
    2. Saurabh Ghosh, 2015. "Building on the Countercyclical Buffer Consensus: An Empirical Test," Research Studies, South East Asian Central Banks (SEACEN) Research and Training Centre, number rp95.
    3. Claudio Borio & Mathias Drehmann, 2009. "Assessing the risk of banking crises - revisited," BIS Quarterly Review, Bank for International Settlements, March.
    4. Mathias Drehmann & Claudio Borio & Leonardo Gambacorta & Gabriel Jiminez & Carlos Trucharte, 2010. "Countercyclical capital buffers: exploring options," BIS Working Papers 317, Bank for International Settlements.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Countercyclical Capital Buffer; Procyclicality; Macroprudential; Gap Credit to GDP;
    All these keywords.

    JEL classification:

    • 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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