Staff Working Papers

Working Paper 12-2: Countercyclical Capital Regime – A Proposed Design and Empirical Evaluation

Author:

​Scott Smith, Associate Director, Office of Capital Policy

Jesse Weiher, Senior Economist

Motivated by the Great Recession in 2008, countercyclical capital regimes are now being considered by financial regulators. This paper provides a methodology on structuring a countercyclical capital requirement to achieve the goal of determining, at the time of acquisition, an amount of capital sufficient to survive a plausible but worst case stress period, in essence to fully capitalize the asset at acquisition.