Supervisors face a raft of challenges when implementing counter-cyclical buffers to address bubbles and business cycles in the financial system, according to a Sveriges Riksbank study.

Oversight bodies need to be especially careful timing the activation of a counter-cyclical buffer – start it too late, and they will need to imposed larger capital restrictions; end it too early, and extra credit handed out could be paid out by banks in dividends.

The Basel III accord imposes two capital