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
Englisch

Bibliographic citation
Series: Bank of Canada Staff Working Paper ; No. 2018-54

Classification
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
Financial institutions
Financial stability
Financial system regulation and policies

Event
Geistige Schöpfung
(who)
van Oordt, Maarten R. C.
Event
Veröffentlichung
(who)
Bank of Canada
(where)
Ottawa
(when)
2018

DOI
doi:10.34989/swp-2018-54
Handle
Last update
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

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