The Access to Instrument of Countercyclical Capital Reserves in the European Union and the USA
The Access to Instrument of Countercyclical Capital Reserves in the European Union and the USA

Author(s): Luboš Fleischmann
Subject(s): Supranational / Global Economy, Law on Economics, Financial Markets
Published by: Masarykova univerzita nakladatelství
Keywords: countercyclical capital reserve; Basel III; regulatory capital; cyclical risk capital ratio;
Summary/Abstract: Repeating financial crisis brings new actions in regulatory rules of the financial markets each time. Regulatory authorities seek to increase the resilience of the banking sector through modified and brand new instruments, especially against cyclical risks associated with fluctuations in credit activity. The same is happening in the post-lehman approach to macro-prudential tools. This paper deals with the impact of countercyclical capital reserves, one of the new supplementary capital reserves, which introduces the Third Basel Accord (Basel III). The paper analyzes the objectives of the countercyclical capital reserve instrument and the method for determining its amount. A comparison is performed among rates set in other European Union countries and approach to the countercyclical capital reserve in the USA. The method also carries out a comparison between the European and American approach. The primary question of the paper is answered using empirical data that relates to the effectiveness of the chosen instrument to achieve the objective, which is to ensure the stability of the banking sector during the crisis and what rate of the countercyclical capital reserve matches the above objectives. The paper also aims to assess whether the tool can fulfill the high expectations of regulatory authorities.

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