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<p>This paper studies how bank lending cycles influence macroeconomic fluctuations and evaluates whether a Basel III countercyclical capital buffer (CCyB) could meaningfully stabilize the business cycle in the United States. Using a structural FAVAR, we extract a latent lending-cycle factor from multiple Senior Loan Officer Opinion Survey (SLOOS) series and show that it predicts economic activity and responds more sharply to lending-supply shocks than individual survey or balance-sheet series. We then implement a state-dependent CCyB counterfactual by scaling lending shocks according to the phase of the credit cycle. Using local projections, we reconstruct the business cycle under alternative CCyB intensities. Even during the stable 2010–2019 environment, the CCyB counterfactual reduces business cycle volatility by 1–4%, with diminishing marginal gains across intensities. The findings show that a modest, but economically meaningful improvement in stabilization is achievable even during mild credit cycles and suggests stronger policy effects during periods of credit overheating or financial stress.</p>

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Credit cycles, lending shocks, and the business cycle

  • 期刊论文

  • 发表日期：

    2026年2月5日

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  • Bert Smoluk

摘要

This paper studies how bank lending cycles influence macroeconomic fluctuations and evaluates whether a Basel III countercyclical capital buffer (CCyB) could meaningfully stabilize the business cycle in the United States. Using a structural FAVAR, we extract a latent lending-cycle factor from multiple Senior Loan Officer Opinion Survey (SLOOS) series and show that it predicts economic activity and responds more sharply to lending-supply shocks than individual survey or balance-sheet series. We then implement a state-dependent CCyB counterfactual by scaling lending shocks according to the phase of the credit cycle. Using local projections, we reconstruct the business cycle under alternative CCyB intensities. Even during the stable 2010–2019 environment, the CCyB counterfactual reduces business cycle volatility by 1–4%, with diminishing marginal gains across intensities. The findings show that a modest, but economically meaningful improvement in stabilization is achievable even during mild credit cycles and suggests stronger policy effects during periods of credit overheating or financial stress.