This indicator has been shown to provide some leading information as a predictor of banking crises, and has been proposed by the Basel Committee on Banking Supervision (BCBS) as a useful guide for decisions about when to activate the countercyclical capital buffer – an important macroprudential policy instrument in the Basel III agreement.
2 Given the complexity of systemic risk, it is unrealistic to expect a single measure or indicator to serve all purposes. Combining indicators can produce better signals with fewer false alarms and undetected crises.