Countercyclical capital regime revisited: Tests of robustness

Scott Smith, Debra Fuller (), Alexander Bogin, Nataliya Polkovnichenko () and Jesse Weiher

Journal of Economics and Business, 2016, vol. 84, issue C, 50-78

Abstract: Financial entities have been subject to risk-based capital requirements for many years. The experiences of the recent financial crisis led to heightened criticism that these rules are pro-cyclical, meaning they require insufficient capital during economic booms and excessive capital during busts. In response, recent revisions to such rules have included a countercyclical capital buffer, but it is problematic because implementation is discretionary with respect to both timing and amount on the part of regulators. An alternative rules-based countercyclical capital proposal put forth by Smith and Weiher (April, 2012. Countercyclical capital regime: a proposed design and empirical evaluation. Federal housing finance agency, working paper no. 12-2) that embodies a dynamically adjusting stress test for mortgage assets was intentionally structured to address these concerns.

Keywords: Capital; Countercyclical; Stress test; House prices; Credit risk (search for similar items in EconPapers)
JEL-codes: E3 E5 G2 H3 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Working Paper: Countercyclical Capital Regime Revisited: Test of Robustness (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jebusi:v:84:y:2016:i:c:p:50-78

DOI: 10.1016/j.jeconbus.2015.11.004

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