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When and at What Level? Calibration of the Countercyclical Capital Buffer Using Early Warning Models

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  • Piotr BaÅ„buÅ‚a

    (Narodowy Bank Polski ul. Świȩtokrzyska 11/21 00-919 Warszawa, Poland2Warsaw School of Economics al. Niepodległości 162, 02-554 Warszawa, Poland)

  • Artur Rutkowski

    (Narodowy Bank Polski ul. Świȩtokrzyska 11/21 00-919 Warszawa, Poland)

Abstract

In this paper, we develop a measure of systemic risk based on an ensemble of early warning models that allows the simultaneous indication of both the timing and the level of the countercyclical capital buffer (CCyB), including its positive neutral level (CCyBPN). The risk measure is the reverse-engineered capital ratio that prevents crisis signals. It effectively predicts crisis episodes across most countries studied. We found that an adequate level of the CCyB often substantially surpasses the implicit limit of 2.5%. The CCyBPN was found to be in the range of 1.5–3%. This methodology is universally applicable to countries that have not experienced banking crises.

Suggested Citation

  • Piotr BaÅ„buÅ‚a & Artur Rutkowski, 2025. "When and at What Level? Calibration of the Countercyclical Capital Buffer Using Early Warning Models," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 15(01), pages 1-33, March.
    • Handle: RePEc:wsi:qjfxxx:v:15:y:2025:i:01:n:s201013922550003x
    DOI: 10.1142/S201013922550003X
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G01 - Financial Economics - - General - - - Financial Crises
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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