Miguel A. Peña-Cerezo

Countercyclical capital buffers: credit-to-GDP ratio versus credit growth

This article provides a comparative analysis of the performance of the credit growth variable compared to the credit-to-GDP ratio as an early warning indicator of banking crises. We find that both variables correctly detect expansive credit growth leading to financial stability problems. However, the timing of the early warning indicators is closer in keeping with cycle changes when the credit growth variable is used. The results obtained are important to design prudential policies aimed at preventively monitoring and fostering banking sector stability and, particularly to manage the countercyclical capital buffer envisaged in the Basel III package.

Identifying credit procyclicality processes and the impact of statistical provision in Spain: analysis of bank financial statements

This paper considers credit procyclicality processes for Spanish deposit institutions using the macro- and micro-prudential methods for the period from 1984 to 2009. The macro-prudential method proposed by Basel III is applied first in order to identify credit cycles and act as a criterion for establishing counter-cyclical capital buffer requirements. Two expansive credit cycles are thus detected, both of which are indeed followed by financial instability problems. In addition, a micro-prudential approach is applied to analyse the effects of the credit policy of banks on the results obtained during each of the two credit cycles. Processes of procyclicality at the level of financial institutions are detected for the first credit cycle, while for the second evidence is presented to support the idea that statistical provision proved effective in the early years of the crisis. These findings are important for designing prudential policies aimed at preventively monitoring and fostering stability in the banking sector.