A simpler alternative could be to tighten capital requirements during good times and reduce them in downturns without actually specifying a range but working through the Supervisory Review Process under Pillar 2 of Basel II Framework. In effect, it would mean building up capital buffers in good times for using them when needed.
Dynamic provisioning Simultaneously it may be necessary to adopt counter cyclical provisioning measures. The case of Spain has been widely quoted, which introduced across the board increase in provisioning requirements, the dynamic provisioning approach. This is based on the premise that loans given at the top of the cycle tend to have higher losses as the cycle turns.