Anchoring countercyclical capital buffer in Basel III

This thesis proposes two top-down approch frameworks to assess the Basel III countercyclical capital buffer. The empirical results demonstrate that sovereign sector distance-to-default and market illiquidity are more suitable indicator for guiding the decision of the buffer during both build-up and release phase than the official indicator, credit-to-GDP ratio. The findings in this thesis are important to help safeguard the globe financial system.