Countercyclical Capital Buffers: Exploring Options

This paper provides some general lessons for the design of countercyclical capital buffers. Its main empirical contribution is to analyze conditioning variables which could guide the build-up and release of capital. A major distinction for countercyclical capital schemes is whether conditioning variables are bank-specific or system-wide. The evidence presented in the paper indicates that the idiosyncratic component can be sizeable when a bank-specific approach is used. This makes a system-wide approach preferable, for which the best variables as signal for the pace and size of the accumulation of the buffers are not necessarily the best for the timing and intensity of the release.

Provided by: Bank for International Settlements Topic: CXO Date Added: Jul 2010 Format: PDF

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