December 2011 issue contents
Anchoring Countercyclical Capital Buffers: The role of Credit Aggregates

by Mathias Drehmann, Claudio Borio, and Kostas Tsatsaronis
Monetary and Economic Department, Bank for International Settlements


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, because this variable captures the build-up of systemwide vulnerabilities that typically lead to banking crises. Other indicators, such as credit spreads, are better at indicating the release phase, as they are contemporaneous signals of banking sector distress that can precede a credit crunch.

JEL Codes: E44, E61, G21.

Full article (PDF, 52 pages 606 kb)

Discussion by Òscar Jordà