Capital buffer must be ahead of the financial cycle

News - October 2019 - No. 8

Authors Danmarks Nationalbank
Subject Financial stability; Macroprudential policy
Type News
Year 2019
Published 17 October 2019
If you want to hit a moving target, you must aim ahead of the target, not at its current position. This principle applies just as well when playing dodgeball at school as when shooting down enemy missiles in wartime. It also applies when policymakers determine the banks' capital buffer level required to weather hard times. They must look at the direction in which the financial development is moving, rather than at its current state.