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Variable capital rules in a risky world

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  • Òscar Jordà

Abstract

The recent financial crisis showed that a financial institution's equity may be sufficient to absorb losses during normal times, but insufficient during periods of systemic distress. In recognition of this risk, the Basel III agreement last year introduced a new element of macroprudential regulation called countercyclical buffers, variable capital requirements that shift based on credit growth. These buffers raise the classic regulatory dilemma of safety versus economic growth, but may provide protection against financial calamity at an acceptable cost.

Suggested Citation

  • Òscar Jordà, 2011. "Variable capital rules in a risky world," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue aug29.
    • Handle: RePEc:fip:fedfel:y:2011:i:aug29:n:2011-27
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    References listed on IDEAS

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    1. Paolo Angelini & Laurent Clerc & Vasco Cúrdia & Leonardo Gambacorta & Andrea Gerali & Alberto Locarno & Roberto Motto & Werner Roeger & Skander Van den Heuvel & Jan Vlček, 2015. "Basel III: Long-term Impact on Economic Performance and Fluctuations," Manchester School, University of Manchester, vol. 83(2), pages 217-251, March.
    2. Michael Hume & Andrew Sentance, 2009. "The global credit boom: challenges for macroeconomics and policy," Discussion Papers 27, Monetary Policy Committee Unit, Bank of England.
    3. Hume, Michael & Sentance, Andrew, 2009. "The global credit boom: Challenges for macroeconomics and policy," Journal of International Money and Finance, Elsevier, vol. 28(8), pages 1426-1461, December.
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