WASHINGTON—Federal Reserve officials are weighing whether to use a tool that could reduce the risk of a credit crunch in a downturn. The tool is known as the countercyclical capital buffer. It allows the Fed to require banks to hold more loss-absorbing capital should the economy show signs of overheating, or to keep less of it during bad economic times. The buffer applies generally to banks with more than $250 billion in assets, including firms such as JPMorgan Chase & Co., Bank of America Corp. and Citigroup Inc. The Fed’s board of governors so far hasn’t used the tool, approved in 2016. Its rule on the buffer says it should turn it up when economic risks are “meaningfully above normal” and reduced when they “abate or lessen.” Now, some Fed officials are debating whether it is time to use the tool, which could provide banks with additional lending firepower in a subsequent downturn. It isn’t clear when they might make a decision. “The idea of putting it in place so you can cut it, that’s something some other jurisdictions have done, and it’s worth considering,” Fed Chairman Jerome Powell said at a late July press conference. Fed officials have been debating about whether to use the tool since last year. Now, they are raising another question: how it should be used. Fed Gov. Lael Brainard, an Obama appointee, favors turning on the buffer now and raising capital requirements for big banks. She dissented from a March Fed vote to leave the buffer dormant. “Turning on the [buffer] would build an extra layer of resilience and signal restraint, helping to damp the rising vulnerability of the overall system,” she said in a May speech. The countercyclical capital buffer was created in 2010 by international regulators through the Basel Committee on Banking Supervision. It is being used in other parts of the world, including Sweden and Hong Kong.