THE BASEL III COUNTERCYCLICAL CAPITAL BUFFER: AN ASSESSMENT

Abstract

The regulation and supervision of the financial system have been recently a prime concern of the global economic authorities. Globalization, the process of financial liberalization and consequent economic interconnection between countries have increased the systemic risk, and the need for a more efficient regulation. Thus, with the outbreak of the American crisis in 2008, the G-20 began to act more actively in favor of maintaining the health of the global financial system. For banks, the G-20 instructed the main regulatory institutions like the International Monetary Fund, the Financial Stability Board and the Basel Committee on Banking Supervision (BCBS) to develop recommendations to solve the main problem of the regulation of financial system: the fact that banking sector has a pro-cyclical behavior. Faced with this scenario, in December 2009, the Committee published a document which considered a number of measures in order to solve this problem, among others the inclusion of a counter-cyclical capital buffer in the new regulatory framework proposed by the Committee, the Basel III. This paper aims at analyzing the proposal of countercyclical capital buffer and its applicability in the Brazilian banking system.