While sectoral capital buffers would offer scope to more closely target those sectors subject to rapid credit growth, we have found in simulations that the use of such buffers is likely to have only a modest effect on the pricing of credit for the affected sectors, unless dramatic adjustments are imposed.
In principle, sectoral risk weights, generated by Basel II throughthe-cycle risk models, should already reflect the risks of lending to the sector, including the risk of a cyclical downturn. Accordingly, we must, in the first instance, focus carefully on the integrity of the risk models used to support Basel 2, before contemplating additional overlays.