The Countercyclical Capital Buffer (CCyB) is a core macroprudential tool designed to ensure the banking system builds loss-absorbing capital reserves during periods of excessive credit growth, which can then be used to support lending during economic downturns.

Authorities calibrate the CCyB rate by tracking the Credit-to-GDP Gap—the deviation of the current credit-to-GDP ratio from its long-term structural trend:

Credit-to-GDP Gap = Current Credit-to-GDP Ratio - Long-Term Structural Growth Trend

If the credit-to-GDP gap rises significantly above its long-term baseline, it signals an unsustainable expansion of leverage. Regulators respond by raising the CCyB requirement (up to 2.5% of risk-weighted assets), forcing banks to retain earnings and strengthen their capital cushions. When a crisis hits, the buffer is lowered to zero, allowing banks to use those reserves to absorb losses and continue underwriting loans.