Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/322084 
Year of Publication: 
2025
Series/Report no.: 
ECB Working Paper No. 3061
Publisher: 
European Central Bank (ECB), Frankfurt a. M.
Abstract: 
We study the impact of cyclical systemic risks on banks' profitability in the euro area within a panel quantile regression model, with the ultimate goal to inform the calibration of the Countercyclical Capital buffer (CCyB). Compared to previous studies, we augment our model to control for unobserved bank-specific characteristics and year-fixed effects and find a lower degree of heterogeneity in the estimated effects across the conditional distribution of bank returns on assets. We propose a simple yet intuitive framework to calibrate the CCyB through the cycle, including the so-called "positive neutral" rate. The model suggests a target positive neutral rate for the euro area ranging from 1.1% to 1.8%. Furthermore, the calibrated CCyB rates are consistent with the evolution of domestic cyclical systemic risks in the countries considered. The results further show that the adoption of a positive neutral CCyB approach allows for an earlier and more gradual build-up of the buffer, but does not lead to higher CCyB requirements at the peak of the cycle. Importantly, a positive neutral CCyB strategy would have implied that most euro area countries would have had a positive CCyB in place at the onset of the COVID-19 pandemic.
Subjects: 
Macropudential Policy
Systemic Risk
Bank Capital
Quantile Regression
Local Projection
financial risk
banking
economic cycle
economic model
euro area
JEL: 
E52
G11
G23
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-7226-0
Document Type: 
Working Paper

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