Impact of external imbalances on the countercyclical capital buffer decisions in Slovakia

Štefan Rychtárik, National Bank of Slovakia, Slovak Republic
Andrej Kopčár, Faculty of Mathematics, Physics and Informatics, Comenius University in Bratislava, Slovak Republic

Pages: 40 – 51

Abstract

The countercyclical capital buffer is one of the main instruments of macroprudential policy in the field of cyclical risks. Its main objective is to contribute to the banking sector resilience in good times in order to absorb greater losses during a crisis. Thus, appropriate identification of the financial cycle is essential for the effective functioning of this framework. In our study, we use simple empirical methods to test whether balance of payments data are relevant for the description of the financial cycle in Slovakia. It turns out that current account deficit of the balance of payments could be potentially included among the leading indicators for the countercyclical capital buffer.

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