Financial Stability Committees and Basel III Macroprudential Capital Buffers

Rochelle Edge () and J. Nellie Liang ()
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J. Nellie Liang: https://www.brookings.edu/experts/nellie-liang/

No 2020-016, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We evaluate how a country’s governance structure for macroprudential policy affects its implementation of Basel III macroprudential capital buffers. We find that the probabilities of using the countercyclical capital buffer (CCyB) are higher in countries that have financial stability committees (FSCs) with stronger governance mechanisms and fewer agencies, which reduces coordination problems. These higher probabilities are more sensitive to credit growth, consistent with the CCyB being used to mitigate systemic risk. A country’s probability of using the CCyB is even higher when the FSC or ministry of finance has direct authority to set the CCyB, perhaps because setting the CCyB involves establishing a new macro-financial analytical process to regularly assess systemic risks and allows these new entities to influence the process. These results are consistent with elected officials creating the FSCs with the strongest governance and fewer agencies for functional delegation reasons, but most FSCs are created for symbolic political reasons.

Keywords: Delegation; Financial stability committees; Credit growth; Macroprudential policy; Countercyclical capital buffer; bank regulators (search for similar items in EconPapers)
JEL-codes: G21 G28 H11 P16 (search for similar items in EconPapers)
Pages: 44 p.
Date: 2020-02-18
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fmk and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2020-16

DOI: 10.17016/FEDS.2020.016

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