Risk-to-Buffer: Setting Cyclical and Structural Capital Buffers through Banks Stress Tests

Cyril Couaillier and Valerio Scalone

Working papers from Banque de France

Abstract: In this work we present the Risk-to-Buffer: a new framework to jointly calibrate cyclical and structural capital buffers, based on the integration of a non-linear macroeconomic model with a Stress test model. The macroeconomic model generates scenarios whose severity depends on the level of cyclical risk. Risk-related scenarios feed into a banks' Stress test model. Banks' capital losses deriving from the reference-risk scenario are used to calibrate the structural buffer. Additional losses associated to the current-risk scenario are used to calibrate the cyclical buffer.

Keywords: Financial Vulnerability; Macroprudential Policy; Non-linear Models; Macroprudential Space; Deb (search for similar items in EconPapers)
JEL-codes: C32 E51 E58 G51 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2021
New Economics Papers: this item is included in nep-ban, nep-cba, nep-isf, nep-mac and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:830

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