Search Results

You are looking at 1 - 3 of 3 items for :

  • "Basel gap specification" x
Clear All
Torsten Wezel

Basel credit gap using a high smoothing factor (λ=400,000) is the best crisis predictor in the range of possible credit gaps and for an even wider range of alternative variables for that matter. The Basel gap specification simply does not perform well for this rather heterogeneous set of European countries. IV. CCB Versus Ordinary Buffer It is instructive to take the two-stage regression approach a step further and map the normalized credit gap into the CCB. The fitted values from the second-stage regression constitute the basis for the mapping of residual

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.