From Official Guidelines to Practice: Decoding Europe’s Countercyclical Capital Buffer Decisions (Zsofia Döme, Michael Sigmund)

Zsofia Döme () and Michael Sigmund ()
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Zsofia Döme: Financial Market Authority Liechtenstein
Michael Sigmund: Oesterreichische Nationalbank, Financial Markets Analysis and Surveillance Division

Working Papers from Oesterreichische Nationalbank (Austrian Central Bank)

Abstract: Since 2014, several countries have implemented the Basel III countercyclical capital buffer (CCyB) to enhance the banking sector’s resilience against risks arising from excessive credit growth. We analyze the CCyB decision-making process of macroprudential authorities across Europe. Our findings indicate that macroprudential authorities neither follow the Basel Committee on Banking Supervision (BCBS) guide, based on the credit-to-GDP gap, nor do they rely on the variables recommended by the European Systemic Risk Board when setting the CCyB rate. However, we demonstrate that had the BCBS CCyB guide been applied prior to the global financial crisis of 2007–2008, capital reserves within the European banking sector would have been sufficient to cover the 240 billion euros in government support used to stabilize financial institutions. Our results show that CCyB decision rates are predominantly influenced by a positive cycle-neutral CCyB approach and the funding structure of banking supervision.

Keywords: Countercyclical capital buffer; Macroprudential policies; Financial cycles (search for similar items in EconPapers)
JEL-codes: E32 E58 E61 G21 G28 (search for similar items in EconPapers)
Date: 2025-10-23
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