We investigate the performance of different variables as anchors for setting the level of the countercyclical regulatory capital buffer requirements for banks. The gap between the ratio of credit-to-GDP and its long-term backward-looking trend performs best as an indicator for the accumulation...

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...

Basel III uses the gap between the credit-to-GDP ratio and its long-term trend as a guide for setting countercyclical capital buffers. Criticism of this choice centres on three areas: (i) the suitability of the guide given the objective of the buffer; (ii) the early warning indicator properties...

The endogenous evolution of liquidity risk is a key driver of financial crises. This paper models liquidity feedbacks in a quantitative model of systemic risk. The model incorporates a number of channels important in the current financial crisis. As banks lose access to longer-term funding...