The devil in the DeTail: assessing state-contingent tail effects of a releasable macroprudential capital buffer using a parsimonious agent-based framework

Enrico Minnella, Ana Pereira and Eugen Tereanu

This paper develops an agent-based framework (DeTail) to assess the state-contingent tail effects of releasable macroprudential capital buffers. The model features heterogeneous firms, households, and banks, and a single central bank, all interacting in a fully integrated, stock-flow consistent framework which generates endogenous credit cycles. Using this approach, we evaluate how time-varying capital requirements affect the time-varying distributions of credit growth, firm and household default rates, and bank losses along the credit cycle. Policy experiments show that releasing capital buffers during economic downturns preserves credit supply by improving risky (lower-tail) credit outcomes, reduces both households and firms defaults, and supports macro-financial resilience by limiting tail bank losses. At the same time, capital buffer accumulation during upturns imposes minimal costs and does not significantly constrain lending. These findings support the active use of releasable buffers to mitigate systemic risk and smooth credit cycles without weakening the banking system.

The devil in the DeTail: assessing state-contingent tail effects of a releasable macroprudential capital buffer using a parsimonious agent-based framework