The macroprudential buffers that are currently implemented in the SSM banking system are of a predominantly structural nature and are thus expected to be maintained over the cycle. [9] The countercyclical capital buffer (CCyB) is the only buffer that is intended to be released in case of a downturn. However, the CCyB has only been activated by seven of the 19 euro area countries and currently represents, in the aggregate, only 0.1% of risk-weighted assets [10] A lack of releasable buffers curbs the countercyclical role of macroprudential authorities. When breaching their combined buffer requirements, banks may uphold capital ratios by disposing assets to avoid the automatic restrictions on dividend distributions. If such behaviour becomes widespread in the event of systemic stress, it can result in a credit crunch, which would aggravate the downturn. This is exactly what we observed in previous crisis episodes, and what we should avoid in the future. Macroprudential space in the form of releasable buffers could serve as a potential macro-financial stabilisation in euro area countries. The release of the buffers in a downturn should help banks to sustain the flow of credit. To this end, releasable buffers would first need to be available. In sum, we are in a situation where the overall level of capital requirements is broadly adequate, but the composition may not be optimal. It is therefore important to have a discussion on the need to reallocate capital requirements towards releasable buffers in a capital-neutral manner.
I am happy to say that quite some research on the interaction of these two policy areas has been undertaken here at the ECB. [1] In particular, two papers of the Research Task Force are dedicated to this issue: one documents the macroeconomic impact of macroprudential policy measures and its interaction with monetary policy[2]; a second one sheds light and quantifies the transmission between monetary policy and bank stability. [3]  On-going research at the ECB Moreover, ECB research has showcased the particular importance of remaining vigilant about banks’ resilience in episodes of increasing cyclical systemic risk. Recent work quantifies how exuberant credit and asset price dynamics lead to large downside risks to bank-level return on assets, putting a banking system’s capital at risk over the medium term. [4] The quantification of bank capital at risk can support the calibration of macroprudential instruments. In turn, by subjecting the banking sector to specific shocks, a macroprudential stress-testing framework can help in assessing the capital shortfall in times of stress. Whereas traditional stress-testing frameworks focus on initial capital shortfalls, macroprudential stress-testing frameworks quantify the propagation of costs for banks and the real economy over time. This is the aim of the macro-micro approach, which takes into account the heterogeneity in banks’ reaction functions. [5] More generally, stress-testing has become a key instrument in the macroprudential and financial stability toolkit for assessing risks to the banking system in adverse conditions.