Study calls for twin-pronged macro-pru approach to shocks
Higher capital and CCyB are both needed to mitigate threats to stability, say Bank of Italy authors
Higher minimum capital requirements combined with a counter-cyclical capital buffer (CCyB) represent the most effective way of preventing shocks in the economy from creating instability in the financial sector, a new study finds.
The working paper, published on February 6 by the Bank of Italy, points out that shock events, such as the Covid-19 pandemic, increase “firm default risk” – the likelihood of companies failing after missing payments on loans. The authors – Tommaso Gasparini, Vivien Lewis
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