When credit expansion or asset bubbles form within a specific industry rather than across the entire economy, macroprudential authorities deploy Sectoral Capital Requirements to address the targeted risk.

[Commercial Real Estate Bubble Forms] ---> Regulators Increase Sectoral Risk Weights ---> Cost of Capital Spikes for CRE Loans ---> Banks Reallocate Credit Away from Sector

Instead of raising capital requirements across all business lines, regulators increase the risk-weighting applied to a specific asset class (such as commercial real estate or unsecured consumer credit). This change forces banks to hold more capital against those specific loans, raising the cost of capital for that sector and encouraging lenders to reallocate credit away from high-risk asset classes.