-9In the context of macroprudential regulation, pro-cyclicality represents a problem because banks tend to build up excessive credit during an economic expansion. Limiting pro-cyclicality means limiting both the highs and lows of a credit cycle. Along with many other jurisdictions, the United States adopted a countercyclical capital buffer (CCyB) to address the issue.
The U.S. CCyB is a capital buffer that ranges from zero percent to 2.5 percent of covered institutions’ risk-weighted assets. Domestic regulators have discretion to switch the CCyB on or off anywhere within that range in order to prevent or mitigate the overheating of credit markets under their jurisdiction.