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Conceptual Issues in Calibrating the Basel III
Countercyclical Capital Buffer

by Torsten Wezel

Series:Working Paper No. 19/86
ISBN 9781498312097
Code: #WPIEA2019086

Publication year: 2019

Cdn: $27.00; US: $25.00
Paperback
Language: English
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This paper discusses issues in calibrating the countercyclical capital buffer (CCB) based on a sample of EU countries. It argues that the main indicator for buffer decisions under the Basel III framework, the credit-to-GDP gap, does not always work best in terms of covering bank loan losses that go beyond what could be expected from economic downturns. Instead, in the case of countries with short financial cycles and/or low financial deepening such as transition and developing economies, the Basel gap is shown to work best when computed with a low, smoothing factor and adjusted for the degree of financial deepening. The paper also analyzes issues in calibrating an appropriate size of the CCB and, using a loss function approach, points to a tradeoff between stability of the buffer size and cost efficiency considerations.
Conceptual Issues in Calibrating the Basel III
Cdn: $27.00; US: $25.00
International Monetary Fund (IMF) BookID: 124869 Added: 2019.5.3