If vulnerabilities are identified as being meaningfully above normal, the Federal Reserve can require large banks to increase their lossabsorbing capacity through increases in the CCyB.6 Despite all of these efforts, we understand that these tools have limitations. First, central bankers’ experience with macroprudential tools, including the CCyB, is limited.
Second, regulation and macropudential tools can reduce economic efficiency and hamper economic growth by limiting the ability of the market to allocate financial resources.