Arbeitspapier
Calibrating the magnitude of the countercyclical capital buffer using market-based stress tests
This paper proposes a novel methodology to calibrate the magnitude of the cap on the countercyclical capital buffer (CCyB) using market-based stress tests. The macroprudential authority in our paper aims to contain the possibility of a breach of a minimum capital ratio in the event of a severe system-wide shock within a certain permissible failure probability. To meet its objective during periods of challenging macro-financial conditions, the macroprudential authority requires banks to build up the CCyB during credit booms. We show how market-based stress tests can be used to estimate the necessary magnitude of the CCyB. We apply the methodology to major banks in six advanced economies. Our estimates suggest a magnitude of the cap on the CCyB in a range from 1.4 to 1.7 per cent of total assets, depending on the ability of the macro-prudential authority to forecast macrofinancial conditions.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2018-54
- Classification
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Wirtschaft
General Financial Markets: General (includes Measurement and Data)
Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Financial Institutions and Services: Government Policy and Regulation
- Subject
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Financial institutions
Financial stability
Financial system regulation and policies
- Event
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Geistige Schöpfung
- (who)
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van Oordt, Maarten R. C.
- Event
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Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
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2018
- DOI
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doi:10.34989/swp-2018-54
- Handle
- Last update
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10.03.2025, 11:43 AM CET
Data provider
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Object type
- Arbeitspapier
Associated
- van Oordt, Maarten R. C.
- Bank of Canada
Time of origin
- 2018