The impact of the Countercyclical Capital Buffer on credit: Evidence from its accumulation and release before and during COVID-19

Mikel Bedayo and Jorge Galan

No 2411, Working Papers from Banco de España

Abstract: The countercyclical capital buffer (CCyB) has become a very important macroprudential tool to strengthen banks’ resilience. However, there is still limited evidence of its impact on lending over the cycle. Using data of 170 banks in 25 European Union countries, we provide a comprehensive assessment of how the CCyB release during the pandemic and its earlier accumulation impacted lending activity. We find that the CCyB has significant effects on lending, but that these effects are highly dependent on banks’ capitalization levels and, more importantly, on their headroom over regulatory requirements. We show that the release of the CCyB in response to the pandemic had a positive impact on lending, especially for banks with the lowest headroom over requirements, and that this effect was larger than the negative impact of its previous accumulation. While the CCyB accumulation had a short-term negative impact on lending for the most capital-constrained banks, this effect quickly diluted due to their enhanced solvency position, potentially allowing them to lower their cost of equity. Our results provide evidence of the benefits of the CCyB, especially in supporting lending during adverse events, while emphasising the need for policymakers to consider the heterogeneous effects across banks when deploying this tool.

Keywords: bank credit; capital buffers; COVID-19; macroprudential policy; capital regulation (search for similar items in EconPapers)
JEL-codes: C32 E32 E58 G01 G28 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2024-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-eec and nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.bde.es/f/webbe/SES/Secciones/Publicaci ... 24/Files/dt2411e.pdf First version, April 2024 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2411

DOI: 10.53479/36312

Access Statistics for this paper

More papers in Working Papers from Banco de España Contact information at EDIRC.
Bibliographic data for series maintained by Ángel Rodríguez. Electronic Dissemination of Information Unit. Research Department. Banco de España ().