Bank credit risk and macro-prudential policies: Role of counter-cyclical capital buffer

This paper investigates the impact of macro-prudential policy (proxied by counter-cyclical capital buffer (CCyB)) on bank credit risk during uncertain times, as banking sector stability is crucial in promoting financial intermediation. Using a unique daily data set consisting 4939 default swaps (CDS) 70 banks from 25 countries over period 2010–2019, we find that CCyB tightening decreases bank-level CDS spreads, while loosening increases spreads. heterogeneous effect arises due to its asymmetric ratio (i.e., equity-to-total assets ratio) banks. Tightening significantly capital, whereas does not capital. Thus, risks emanate periods heightened uncertainty and distress can be dampened when regulation enabled. Consequently, policies for hold higher levels good times are justified contain market downturns.