Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates

39 Pages Posted: 14 Nov 2011

See all articles by Mathias Drehmann

Mathias Drehmann

Bank for International Settlements (BIS)

Claudio E. V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis

Kostas Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department

Date Written: November 1, 2011

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.

Keywords: countercyclical capital buffers, financial stability, procyclicality

JEL Classification: E44, E61, G21

Suggested Citation

Drehmann, Mathias and Borio, Claudio E.V. and Tsatsaronis, Konstantinos, Anchoring Countercyclical Capital Buffers: The Role of Credit Aggregates (November 1, 2011). BIS Working Paper No. 355, Available at SSRN: https://ssrn.com/abstract=1959299

Mathias Drehmann (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Claudio E.V. Borio

Bank for International Settlements (BIS) - Research and Policy Analysis ( email )

CH-4002 Basel, Basel-Stadt
Switzerland

Konstantinos Tsatsaronis

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland
(41 61) 280 8082 (Phone)
(41 61) 280 9100 (Fax)

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