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Applicability of Basel III Countercyclical Capital Buffer Guidance to Emerging Market Economies: An Exploration


Tulasi, Gopinath (2015) Applicability of Basel III Countercyclical Capital Buffer Guidance to Emerging Market Economies: An Exploration. International Journal of Banking and Finance (IJBF), 11. pp. 1-30. ISSN 1675-7227

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Abstract

Basel Committee on Banking Supervision (BCBS) has published its guidance for operating the countercyclical capital buffer. It has, inter alia, recommended that credit-to-GDP ratio could be the buffer guide. This paper argues that BCBS buffer guide is not suitable for Emerging Market Economies (EMEs) for variety of reasons and showcases an alternative buffer guide, reflecting their underlying banking business model. It verifies the historical performance of the alternative buffer guide in the Indian context and finds evidence – supported by the corroborative behaviour of the real sector and asset markets - that the alternative guide tracks credit cycles in India better. The paper demonstrates that the alternative indicator does not adversely impact the structural drivers of credit growth. Accordingly, the paper recommends the alternative countercyclical capital buffer guidance with triggers for the build-up and release of the additional countercyclical capital buffer.

Item Type: Article
Uncontrolled Keywords: Countercyclical capital buffers, credit-to-GDP Gap, CD ratio, Credit aggregates, Leverage.
Subjects: H Social Sciences > HC Economic History and Conditions
Divisions: UUM Press
Depositing User: Mrs. Norazmilah Yaakub
Date Deposited: 17 Oct 2018 03:26
Last Modified: 17 Oct 2018 03:26
URI: http://repo.uum.edu.my/id/eprint/24971

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