December 2022 issue contents
Financial Stability Committees and the Basel III Countercyclical Capital Buffer

Rochelle M. Edgea and J. Nellie Liangb

Abstract

We evaluate how a country's governance structure for macroprudential policy affects its use of the Basel III countercyclical capital buffer (CCyB). We find that stronger governance raises the likelihood of a country increasing its CCyB. The probability of increasing the CCyB is higher in countries with stronger financial stability committees (FSCs), defined by those with tools and voting processes. However, most countries have not set up strong FSCs. The probability is even higher under an alternative governance structure where the FSC or ministry of finance has direct authority to set the CCyB. This is perhaps because setting the CCyB involves establishing a new macrofinancial analytical process to regularly evaluate emerging systemic risks and allows these entities with new responsibilities to influence the process. In addition, credit growth has substantial effects on the likelihood of increasing the CCyB, while the credit-to-GDP gap is not significant.

JEL Code: H11, G21, G28, P16.


Federal Reserve Board
b  Brookings Institution