EconPapers    
Economics at your fingertips  
 

The credit-to-GDP gap and countercyclical capital buffers: questions and answers

Mathias Drehmann () and Kostas Tsatsaronis ()

BIS Quarterly Review, 2014

Abstract: Basel III uses the gap between the credit-to-GDP ratio and its long-term trend as a guide for setting countercyclical capital buffers. Criticism of this choice centres on three areas: (i) the suitability of the guide given the objective of the buffer; (ii) the early warning indicator properties of the guide for banking crises (especially for emerging market economies); and (iii) practical measurement problems. While many criticisms have merit, some misinterpret the objective of the instrument and the role of the indicator. Historically, for a large cross section of countries and crisis episodes, the credit-to-GDP gap is a robust single indicator for the build-up of financial vulnerabilities. As such, its role is to inform, rather than dictate, supervisors' judgmental decisions regarding the appropriate level of the countercyclical buffer.

JEL-codes: E44 E51 E61 G01 G21 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (68) Track citations by RSS feed

Downloads: (external link)
http://www.bis.org/publ/qtrpdf/r_qt1403g.pdf (application/pdf)
http://www.bis.org/publ/qtrpdf/r_qt1403g.htm (text/html)

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:bis:bisqtr:1403g

Access Statistics for this article

BIS Quarterly Review is currently edited by Christian Upper

More articles in BIS Quarterly Review from Bank for International Settlements Contact information at EDIRC.
Bibliographic data for series maintained by Christian Beslmeisl ().

 
Page updated 2019-06-03
Handle: RePEc:bis:bisqtr:1403g