BIS: Top-down approach to countercyclical capital buffers preferred
A Bank for International Settlements paper published in July analyses two designs for countercyclical capital buffers and finds a top-down approach to capital controls is better than a bottom up one.
The objective of countercyclical prudential capital is to encourage banks to build up buffers in good times that can be drawn down in bad times. A major distinction for countercyclical capital schemes is whether conditioning variables are bank-specific (bottom-up) or systemwide (top-down).
The
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