However, I see two limitations of the CCB. First, given the relatively long lags in its implementation and impact, the CCB might not have a timely influence on the financial cycle. The CCB should be activated relatively early in the cycle to give it time to display its effects.
This increases the possibility of false alarms, which in turn will most likely lead to setting it at relatively low levels to mitigate the effect of a potential false alarm. In such a scenario though, the CCB runs the risk of being ineffective. Second, such a tool could also be subject to so-called “waterbed effects” or “leakages”.