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Anchoring countercyclical capital buffers: the role of credit aggregates

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  • Mathias Drehmann
  • Claudio Borio
  • Kostas Tsatsaronis

Abstract

We investigate the performance of different variables as anchors for setting the level of the countercyclical regulatory capital buffer requirements for banks. The gap between the ratio of credit-to-GDP and its long-term backward-looking trend performs best as an indicator for the accumulation of capital as this variable captures the build-up of system-wide vulnerabilities that typically lead to banking crises. Other indicators, such as credit spreads, are better in indicating the release phase as they are contemporaneous signals of banking sector distress that can precede a credit crunch.

Suggested Citation

  • Mathias Drehmann & Claudio Borio & Kostas Tsatsaronis, 2011. "Anchoring countercyclical capital buffers: the role of credit aggregates," BIS Working Papers 355, Bank for International Settlements.
  • Handle: RePEc:bis:biswps:355
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    More about this item

    Keywords

    countercyclical capital buffers; financial stability; procyclicality;
    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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