We develop a macroeconomic agent-based model to study how financial instability can emerge from the co-evolution of interbank and credit markets and the policy responses to mitigate its impact on the real economy. The model is populated by heterogenous firms, consumers, and banks that locally...

The purpose of the "counter-cyclical capital buffer" (buffer) is to dampen procyclicality in the financial system, absorb capital losses and prevent a credit crunch during recessions. In this paper, a stylized analytical expression for optimal buffer policy is presented. Results are derived...