When and at What Level? Calibration of the Countercyclical Capital Buffer Using Early Warning Models

Piotr Bańbuła and Artur Rutkowski ()
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Piotr Bańbuła: Narodowy Bank Polski ul. Świȩtokrzyska 11/21 00-919 Warszawa, Poland2Warsaw School of Economics al. Niepodległości 162, 02-554 Warszawa, Poland
Artur Rutkowski: Narodowy Bank Polski ul. Świȩtokrzyska 11/21 00-919 Warszawa, Poland

Quarterly Journal of Finance (QJF), 2025, vol. 15, issue 01, 1-33

Abstract: In this paper, we develop a measure of systemic risk based on an ensemble of early warning models that allows the simultaneous indication of both the timing and the level of the countercyclical capital buffer (CCyB), including its positive neutral level (CCyBPN). The risk measure is the reverse-engineered capital ratio that prevents crisis signals. It effectively predicts crisis episodes across most countries studied. We found that an adequate level of the CCyB often substantially surpasses the implicit limit of 2.5%. The CCyBPN was found to be in the range of 1.5–3%. This methodology is universally applicable to countries that have not experienced banking crises.

Keywords: Countercyclical capital buffer; early warning models; financial stability (search for similar items in EconPapers)
JEL-codes: E44 G01 G21 (search for similar items in EconPapers)
Date: 2025
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DOI: 10.1142/S201013922550003X

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