The importance of being positive: costs and benefits of a positive neutral rate for the countercyclical capital buffer

Luis Herrera-Bravo, Mara Pirovano and Valerio Scalone

Macroprudential Bulletin, 2024, vol. 24

Abstract: This article explores the benefits of a positive neutral rate for the countercyclical capital buffer (CCyB) and the conditions shaping the economic costs of its activation in a general equilibrium framework. The analysis shows that a gradual build-up of the buffer and favourable banking sector conditions (e.g. high profitability) limit these economic costs. Furthermore, a positive neutral CCyB rate ensures banking sector resilience in all phases of the financial cycle and improves macroprudential authorities’ ability to provide relief to the banking sector in the event of (potentially large) shocks, including those unrelated to the materialisation of domestic credit imbalances. JEL Classification: C68, E61, G21, G28

Keywords: bank capital requirements; countercyclical capital buffer; dynamic stochastic general equilibrium model; Macroprudential policy; systemic risk. (search for similar items in EconPapers)
Date: 2024-06
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