The advantage of using a more targeted, or function, approach is that it can cover the shadow-banking sector, asset markets, and the non-financial sector as well. Financial vulnerabilities do not only emerge from the banking sector. At this stage, the main policy decision that is made in the FSC relates to the Basel III countercyclical capital buffer.
This is a potential capital add-on to bank capital should the committee decide to increase the capital requirement of the banking sector as a whole during an upswing, and should the ratio of credit growth to GDP6 be above its long-term trend. This would then be reversed during a downswing.