Credit Growth and Capital Buffers: Empirical Evidence from Central and Eastern European Countries

Abstract

Excessive credit growth is often considered to be an indicator of future problems in the financial sector. This paper examines the issue of how best to determine whether the observed level of private sector credit is excessive in the context of the "countercyclical capital buffer", a macroprudential tool proposed by the Basel Committee on Banking Supervision.

An empirical analysis of selected Central and Eastern European countries, including the Czech Republic, provides alternative estimates of excessive private credit and shows that the HP filter calculation proposed by the Basel Committee is not necessarily a suitable indicator of excessive credit growth for converging countries.

Keywords

• credit growth
• financial crisis countercyclical buffer
• Basel regulation