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From Official Guidelines to Practice: Decoding Europe’s Countercyclical Capital Buffer Decisions (Zsofia Döme, Michael Sigmund)

Author

Listed:
  • Zsofia Döme

    (Financial Market Authority Liechtenstein)

  • Michael Sigmund

    (Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division)

Abstract

Since 2014, several countries have implemented the Basel III countercyclical capital buffer (CCyB) to enhance the banking sector’s resilience against risks arising from excessive credit growth. We analyze the CCyB decision-making process of macroprudential authorities across Europe. Our findings indicate that macroprudential authorities neither follow the Basel Committee on Banking Supervision (BCBS) guide, based on the credit-to-GDP gap, nor do they rely on the variables recommended by the European Systemic Risk Board when setting the CCyB rate. However, we demonstrate that had the BCBS CCyB guide been applied prior to the global financial crisis of 2007–2008, capital reserves within the European banking sector would have been sufficient to cover the 240 billion euros in government support used to stabilize financial institutions. Our results show that CCyB decision rates are predominantly influenced by a positive cycle-neutral CCyB approach and the funding structure of banking supervision.

Suggested Citation

  • Zsofia Döme & Michael Sigmund, 2025. "From Official Guidelines to Practice: Decoding Europe’s Countercyclical Capital Buffer Decisions (Zsofia Döme, Michael Sigmund)," Working Papers 269, Oesterreichische Nationalbank (Austrian Central Bank).
    • Handle: RePEc:onb:oenbwp:269
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    References listed on IDEAS

    as
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    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • 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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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