medium · FRM Part 2 Operational Risk
A regulator is debating between using the Credit-to-GDP gap or a 'Credit Growth' metric as the primary CCyB guide.
What is a key advantage of the Gap over the Growth metric?
- The Gap is a point-in-time (PIT) leverage snapshot, whereas the Growth metric is inherently a through-the-cycle (TTC), backward-smoothed indicator by design.
- The Gap deliberately ignores shadow banking flows entirely, which greatly simplifies data collection burdens for regulators lacking granular reporting.
- The Gap is easier and faster to calculate since it skips the need for an HP filter or any long historical trend estimation step.
- The Gap normalizes credit levels by the size of the economy, preventing a high-growth but low-leverage economy from triggering the buffer prematurely.
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