The agreement of the Group of Central Bank Governors and Heads of Supervision, set out in its 7 September 2009 press release, included a commitment to introduce a framework for countercyclical capital buffers above the minimum requirement. Subsequently, the Basel Committee agreed that a building block approach should be adopted to organise the work on procyclicality. The aim of this approach was to align the development of tools to address procyclicality according to a specific set of objectives. The four key objectives identified by the Committee were set out as follows in the December 2009 Consultative Document Strengthening the resilience of the banking sector:
· dampen any excess cyclicality of the minimum capital requirement;
· promote more forward looking provisions;
· conserve capital to build buffers at individual banks and the banking sector that can be used in stress; and
· achieve the broader macroprudential goal of protecting the banking sector from periods of excess credit growth
The December 2009 Consultative Document included a proposal for a capital conservation buffer to address the third objective above and set out some potential elements of a regime to address the fourth objective. The Macro Variables Task Force (MVTF) was formed to further develop a proposal to address the fourth objective with the goal of providing a fully detailed proposal for review by the Basel Committee at its July 2010 meeting. The proposal takes into consideration the formal feedback on a summary of the broad concept of a countercyclical buffer contained in the December Consultative Document.
This consultative document is structured as follows:
· Section 1 describes the primary objective of the proposed buffer and presents a short overview of how it would operate in practice.
· Section 2 sets out a more detailed description of certain key elements of the proposal.
The annexes discuss how the proposed buffer can be integrated with the capital conservation buffer, describe how the credit-to-GDP guide should be calculated and provide the supporting empirical evidence used to develop the proposal.
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