Economics • Banking & FinanceMedium
In the context of the Indian banking system, what does the term 'Countercyclical Capital Buffer (CCyB)' entail under Basel III guidelines?
A. A mandatory capital reserve built by banks during economic booms to absorb losses during downturns✓ Correct Answer
B. A special fund maintained exclusively to bail out failing non-banking financial companies
C. A penalty fee levied by the central bank on excessive foreign currency borrowing
D. An emergency liquidity window provided by the RBI during acute banking panics
💡 Solution & Explanation
The Countercyclical Capital Buffer requires commercial banks to accumulate additional capital reserves during periods of high economic growth, which can then be drawn down during financial downturns to absorb losses. Incorrect options describe unrelated concepts such as central bank liquidity windows or government bailout funds for non-banking entities.
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