This paper provides some general lessons for the design of counter-cyclical capital buffers. Its main empirical contribution is to analyze conditioning variables which could guide the build-up and release of capital. A major distinction for counter-cyclical capital schemes is whether...

We critically review the state of the art in macro stress testing, assessing its strengths and weaknesses. We argue that, given current technology, macro stress tests are ill-suited as early warning devices, ie as tools for identifying vulnerabilities during seemingly tranquil times and for...

Historically, unusually strong increases in credit and asset prices have tended to precede banking crises. Could the current crisis have been anticipated by exploiting this relationship? We explore this question by assessing the out-of-sample performance of leading indicators of banking system...

Few, if any, of the macro stress tests undertaken before the current crisis uncovered significant vulnerabilities. This article examines the reasons for the poor performance by comparing the outcomes of simple stress tests with actual events for a large sample of historical banking crises. The...