A Note on the Implementation of the Countercyclical Capital Buffer in Italy

38 Pages Posted: 25 Aug 2015

Date Written: June 25, 2015

Abstract

This paper analyzes the challenges posed by the implementation of the countercyclical capital buffer framework in Italy and proposes ways of meeting them. In the first part of the analysis we review the limitations of the standardized Basel III credit-to-GDP gap; we then propose possible solutions, which while remaining in the spirit of Basel, can better capture the state of the credit cycle in real time. In the second part of the paper we propose a step by step approach for reducing the uncertainty that may arise when looking at the indicators which, in addition to the credit-to-GDP gap, are designed to help authorities take decisions about the buffer rate; we also analyze the relationship between the selected indicators and a continuous variable of banking system riskiness. While the analysis is conducted with reference to Italian data, the proposed analytical framework is applicable to any country.

Keywords: countercyclical capital buffer, financial cycle, credit cycle, macroprudential policy, capital requirements, banks, banking crises

JEL Classification: E32, G01, G21, G28

Suggested Citation

Alessandri, Piergiorgio and Bologna, Pierluigi and Fiori, Roberta and Sette, Enrico, A Note on the Implementation of the Countercyclical Capital Buffer in Italy (June 25, 2015). Bank of Italy Occasional Paper No. 278. Available at SSRN: https://ssrn.com/abstract=2649949 or http://dx.doi.org/10.2139/ssrn.2649949

Piergiorgio Alessandri (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Pierluigi Bologna

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Roberta Fiori

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Enrico Sette

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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