[Are Equity Buffers Effective During the Eonomic Downturn?]

Additional "capital buffers", such as the countercyclical capital buffer, were introduced after the 2008/09 crisis. These buffers were requested in addition to banks' minimum capital requirements. They should be built up during good times and can be used during bad times. While buffer requirements were reduced quickly in the spring of 2020, financial institutions have been reluctant to use the additional leeway as they may fear market stigma effects if capital ratios fall and they might abstain from new loans due to high uncertainty. The article argues in favor of a more simple and transparent organisation of macroprudential regulation as measures to raise the effectiveness of capital buffers, especially during a downturn.