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This article provides a simulation on how the countercyclical capital buffer designed in the Basel III package could impact on bank lending. It finds that the buffer could help to reduce credit growth during booms and attenuate the credit contraction once it is released. This would help to dampen procyclicality in addition to the beneficial effects of higher capital levels in terms of higher banking sector resilience to shocks.
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Drehmann et al. (2011) studied this question.
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