In macroprudential policy, what is a systemic risk buffer (SyRB) used for?

• A. A capital buffer that is not calibrated to system-wide risk
• B. A temporary liquidity facility
• C. A cap on leverage
• D. A countercyclical capital or systemic risk buffer designed to strengthen system-wide resilience against large-scale shocks

Answer: (D)

Systemic risk buffers are tools to strengthen the financial system as a whole when risk is pervasive and interconnected. The SyRB is designed as a capital buffer that can be set to address system-wide vulnerabilities, either as a countercyclical capital buffer or as a dedicated systemic risk buffer. This means authorities can require banks to hold extra loss-absorbing capital during periods of elevated systemic risk, so the system can better absorb shocks and reduce the chance of a widespread credit crunch or a downward spiral in financial conditions. It’s about resilience to large-scale events, not about providing liquidity in a stress scenario or imposing a simple cap on leverage. So the description that it strengthens system-wide resilience against large-scale shocks captures its purpose and use.