Via CNBC: “Banking regulators have quietly taken a major step towards harmonised global regulation by agreeing to raise worldwide capital requirements whenever an individual country declares a credit bubble. Part of the larger Basel III banking reform package, the “countercyclical capital buffer” heralds a step change in the way national banking regulators interact and is the first concrete example of “macroprudential” regulation that seeks to moderate the economic cycle. The agreement, struck last month, says that if a country decides its economy is overheated – based on the ratio of credit to gross domestic product – it can require banks within its borders to hold extra capital against potential losses. Regulators in every other country would have to follow suit and impose a proportional surcharge on their own banks, based on the size of those institutions’ exposure to the bubble country. Once the bubble pops, regulators could reduce or remove the buffer, allowing banks to use the extra capital to absorb losses. All 27 members of the Basel Committee on Banking Supervision signed on to this first-of-its-kind agreement, including the world’s biggest economies.”