Staff Working Papers

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

Author(s): ​Scott Smith, Associate Director, Office of Capital Policy, and Jesse Weiher, Senior Economist

Abstract: 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.