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Torsten Wezel
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.
Torsten Wezel

the recommended calibration of the CCB given the cost of maintaining excessively large buffers over longer periods, that is, when the calibration produces a CCB that is arguably oversized in individual cases. Specifically, the paper considers a somewhat more systematic approach to calibrating the CCB, particularly regarding the minimum and maximum threshold values of the credit gap that in line with BCBS (2010) are mapped into a CCB spanning 0 to 2.5 percent of RWA. The BCBS calibration underlying the thresholds of 2 percentage points (pp) of the credit