This Chapter discusses the regulatory, legislative and institutional framework for two capital-based macroprudential instruments, i.e. the Capital Conservation Buffer (hereinafter: CCoB) and the Countercyclical Capital Buffer (hereinafter: CCyB). At the outset, a brief historical background...

Over the last few years, national macroprudential authorities have developed different strategies for setting the countercyclical capital buffer (CCyB) rate in the banking sector. The existing approaches are based on various indicators used to identify the current phase of the financial cycle....

This paper presents the analysis underpinning the ESRB Recommendation on guidance on setting countercyclical buffer rates (ESRB 2014/1). The Recommendation is designed to help authorities tasked with setting the countercyclical capital buffer (CCB) to operationalise this new macroprudential...

Based on the macro-financial risk framework of Gray et al. (2006) that links the balance sheets of the financial sector and public sector together through government guarantees, we propose an indicator, sovereign distance-to-default (SDD), for implementing the countercyclical capital buffer...

Monetary policy leaves a fiscal footprint. In some circumstances, relieving the fiscal burden becomes the main goal of policy, and inflation control is subordinate. This article notes that the same is true of macroprudential policy, and it characterizes the size and sign of its fiscal footprint,...

After the destructive impact of the global financial crisis of 2008, many believe that pre-crisis financial market regulation did not take the "big picture" of the system suffciently into account and, subsequently, financial supervision mainly "missed the forest for the trees". As a result, the...

A bank's decision on loan supply and capital structure determines its immediate bankruptcy risk as well as the future availability of internal funds. These internal funds in turn determine a bank's future costs of external finance and future vulnerability to bankruptcy risks. We study these...

Business cycles imply liquidity risks for banks. This paper explores how these risks influence bank lending over the cycle. With forward-looking banks, lending cycles, credit booms and busts, or suppressed and highly fragile bank systems can emerge, depending on the magnitude of liquidity risks....

This paper analyses a group of quantitative indicators to guide the Basel III countercyclical capital buffer (CCB) in Spain. Using data covering three stress events in the Spanish banking system since the early 1960s, we describe a number of conceptual and practical issues that may arise with...