A working paper published by the Banque de France analyses the relationship between financial sector risk and banks’ capital frameworks.

In Risk-to-buffer: setting cyclical and structural capital buffers through banks’ stress tests, Cyril Couaillier and Valerio Scalone present a new framework for judging lenders’ buffer levels. Their “risk-to-buffer” framework aims to jointly calibrate both cyclical and structural capital buffers.

The authors do this by integrating a non-linear macroeconomic