Working Paper

Financial Stability Committees and Basel III Macroprudential Capital Buffers

Abstract: We evaluate how a country’s governance structure for macroprudential policy affects its implementation of Basel III macroprudential capital buffers. We find that the probabilities of using the countercyclical capital buffer (CCyB) are higher in countries that have financial stability committees (FSCs) with stronger governance mechanisms and fewer agencies, which reduces coordination problems. These higher probabilities are more sensitive to credit growth, consistent with the CCyB being used to mitigate systemic risk. A country’s probability of using the CCyB is even higher when the FSC or ministry of finance has direct authority to set the CCyB, perhaps because setting the CCyB involves establishing a new macro-financial analytical process to regularly assess systemic risks and allows these new entities to influence the process. These results are consistent with elected officials creating the FSCs with the strongest governance and fewer agencies for functional delegation reasons, but most FSCs are created for symbolic political reasons.

Keywords: Delegation; Financial stability committees; Credit growth; Macroprudential policy; Countercyclical capital buffer; bank regulators;

JEL Classification: G21; G28; H11; P16;

https://doi.org/10.17016/FEDS.2020.016

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2020-02-18

Number: 2020-016