Countercyclical capital buffers: credit-to-GDP ratio versus credit growth

Francisco J. Ib��ez-Hern�ndez, Miguel �. Pe�a-Cerezo and Andr�s Araujo
Authors registered in the RePEc Author Service: Francisco Jaime Ibañez, Sr.

Applied Economics Letters, 2015, vol. 22, issue 5, 385-390

Abstract: This article provides a comparative analysis of the performance of the credit growth variable compared to the credit-to-GDP ratio as an early warning indicator of banking crises. We find that both variables correctly detect expansive credit growth leading to financial stability problems. However, the timing of the early warning indicators is closer in keeping with cycle changes when the credit growth variable is used. The results obtained are important to design prudential policies aimed at preventively monitoring and fostering banking sector stability and, particularly to manage the countercyclical capital buffer envisaged in the Basel III package.

Date: 2015
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DOI: 10.1080/13504851.2014.946174

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