Jakub Seidler

Credit Growth and Financial Stability in the Czech Republic

The Czech Republic had experienced a credit boom similar to those in other converging economies in the pre-crisis years. Nevertheless, the consequences of this credit boom were limited as was the impact of the global crisis on domestic financial institutions. This paper describes the developments in the Czech banking sector and explains how the tough macroeconomic environment in the Czech Republic acted as a strong tool of macroprudential policy. It concludes that although it is difficult to tame credit booms in small converging economies, a concerted set of microprudential and macroprudential measures, including monetary and fiscal ones, may ensure some success.

Capital buffers based on banks’ domestic systemic importance: selected issues

Purpose - – The purpose of this paper is to assist the numerous regulators around the globe who are currently considering ways to impose domestic systemic importance-based capital requirements on banks. Design/methodology/approach - – The article discusses in some detail a number of issues from the viewpoint of regulatory practice, mentioning relevant literature where available. Comments partly reflect the experience that the Czech National Bank gathered over the past two years while preparing its own regime of domestic systemic importance-based capital requirements on banks. Findings - – The authors stress, among other points, one weakness of the (otherwise well-designed) method suggested by the Basel Committee for Banking Supervision (BCBS) for assessment of banks’ systemic importance: the method is “relative” in that it does not reflect the absolute importance of the banking sector for the economy. The paper also explains that in some cases, use of individual-level rather than consolidated-level data may be preferable, in contrast to what the BCBS guidance suggests. Further, implications of the buffers over a longer term are pointed out. Originality/value - – As far as the authors are aware, this article is the first to comprehensively discuss the main issues surrounding both key steps (systemic importance assessment and determination of buffer level) in the process of introducing buffers based on domestic systemic importance. A number of questions related to these two steps are raised which regulators may appreciate to be reminded of, even if some of the questions are such that it is not possible to give a generally applicable answer to them.

Countercyclical Capital Buffers and Credit-to-GDP Gaps: Simulation for Central, Eastern, and Southeastern Europe

Under Basel III, banks are required to build up countercyclical capital buffers during periods of excessive credit growth to cover future credit losses. Based on a review of the credit boom episodes in sixteen Central, Eastern, and Southeastern European countries during 2000s, two measures of excessive credit are calculated: one based on the Hodrick-Prescott filter, as suggested by the Basel Committee for the activation of the countercyclical buffer, and the other based on an estimate of equilibrium credit. While the filtering-based measure signals future credit losses quite well, using the measure based on equilibrium credit improves the forecast of future deleveraging and its impact on GDP.

A New Measure of the Financial Cycle: Application to the Czech Republic

The recent financial crisis has demonstrated the importance of the linkages between the financial sector and the real economy. This article proposes a suitable and easy-to-apply method for assessing the position of the economy in the financial cycle in order to identify emerging imbalances in a timely manner. The method utilizes a composite indicator, constructed by the authors, that combines variables representing risk perceptions in the financial sector and their reinforcing interactions over the financial cycle. The indicator is calibrated to capture the future credit losses of the Czech banking sector. This method can be used by policymakers for a wide range of policy decisions, including the setting of a countercyclical capital buffer.