Moreover the countercyclical capital buffer has some practical limitations: It applies to a subset of the U.S. banking system and is designed to act with a one-year lag. It also cannot be used efficiently to target specific asset classes that appear frothy, a challenge I turn to next.
Tool three: time-varying sector-specific tools The countercyclical buffer may be a relatively blunt tool for circumstances where the buildup of risk is highly concentrated in a particular sector.