Financial Stability Committees and the Basel III Countercyclical Capital Buffer

Rochelle M. Edge and J. Nellie Liang
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Rochelle M. Edge: Federal Reserve Board
J. Nellie Liang: Brookings Institution

International Journal of Central Banking, 2022, vol. 18, issue 5, 1-53

Abstract: We evaluate how a country’s governance structure for macroprudential policy affects its use of the Basel III countercyclical capital buffer (CCyB). We find that stronger governance raises the likelihood of a country increasing its CCyB. The probability of increasing the CCyB is higher in countries with stronger financial stability committees (FSCs), defined by those with tools and voting processes. However, most countries have not set up strong FSCs. The probability is even higher under an alternative governance structure where the FSC or ministry of finance has direct authority to set the CCyB. This is perhaps because setting the CCyB involves establishing a new macrofinancial analytical process to regularly evaluate emerging systemic risks and allows these entities with new responsibilities to influence the process. In addition, credit growth has substantial effects on the likelihood of increasing the CCyB, while the credit-to-GDP gap is not significant.

JEL-codes: G21 G28 H11 P16 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (4)

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