scholarly journals The Disturbing Interaction between Countercyclical Capital Requirements and Systemic Risk

2012 ◽  
Author(s):  
Bálint Horváth ◽  
Wolf Wagner
Keyword(s):  
Systemic Risk ◽  
Capital Requirements

scholarly journals Systemic Risk and Insurance Regulation †

Risks ◽  
2018 ◽  
Vol 6 (3) ◽  
pp. 74 ◽  
Author(s):  
Fabiana Gómez ◽  
Jorge Ponce
Keyword(s):  
Systemic Risk ◽  
Formal Model ◽  
Public Support ◽  
Solvency Ii ◽  
Capital Requirements ◽  
Insurance Companies ◽  
Prudential Regulation ◽  
High Exposure ◽  
Insurance Firms ◽  
Low Exposure

This paper provides a rationale for the macro-prudential regulation of insurance companies, where capital requirements increase in their contribution to systemic risk. In the absence of systemic risk, the formal model in this paper predicts that optimal regulation may be implemented by capital regulation (similar to that observed in practice, e.g., Solvency II ) and by actuarially fair technical reserve. However, these instruments are not sufficient when insurance companies are exposed to systemic risk: prudential regulation should also add a systemic component to capital requirements that is non-decreasing in the firm’s exposure to systemic risk. Implementing the optimal policy implies separating insurance firms into two categories according to their exposure to systemic risk: those with relatively low exposure should be eligible for bailouts, while those with high exposure should not benefit from public support if a systemic event occurs.

scholarly journals Systemic risk measurement: bucketing global systemically important banks

2021 ◽  
Author(s):  
Marina Brogi ◽  
Valentina Lagasio ◽  
Luca Riccetti
Keyword(s):  
Systemic Risk ◽  
Financial System ◽  
Capital Requirements ◽  
Insurance Premium ◽  
Risk Measurement ◽  
Marginal Contribution ◽  
General Consensus ◽  
Systemically Important Banks

AbstractThe general consensus on the need to enhance the resilience of the financial system has led to the imposition of higher capital requirements for certain institutions, supposedly based on their contribution to systemic risk. Global Systemically Important Banks (G-SIBs) are divided into buckets based on their required additional capital buffers ranging from 1% to 3.5%. We measure the marginal contribution to systemic risk of 26 G-SIBs using the Distressed Insurance Premium methodology proposed by Huang et al. (J Bank Financ 33:2036–2049, 2009) and examine ranking consistency with that using the SRISK of Acharya et al. (Am Econ Rev 102:59–64, 2012). We then compare the bucketing using the two academic approaches and supervisory buckets. Because it leads to capital surcharges, bucketing should be consistent, irrespective of methodology. Instead, discrepancies in the allocation between buckets emerge and this suggests the complementary use of other methodologies.

scholarly journals The Application of Macroprudential Capital Requirements in Managing Systemic Risk

Complexity ◽  
2018 ◽  
Vol 2018 ◽  
pp. 1-15
Author(s):  
Hong Fan ◽  
Chirongo Moses Keregero ◽  
Qianqian Gao
Keyword(s):  
Systemic Risk ◽  
Financial Stability ◽  
Banking System ◽  
Capital Requirements ◽  
Equity Capital ◽  
Risk Allocation ◽  
Regulatory Capital ◽  
Allocation Mechanism ◽  
Bank Equity ◽  
Almost All

When setting banks regulatory capital requirement based on their contribution to the overall risk of the banking system we need to consider that the risk of the banking system as well as each banks risk contribution changes once bank equity capital gets redistributed. Therefore the present paper provides a theoretical framework to manage the systemic risk of the banking system in Nigeria based on macroprudential capital requirements, which requires banks to hold capital that is proportional to their contribution to systemic risk. Using a sample of 10 Nigerian banks, we reallocate capital in the system based on two scenarios; firstly in the situation where the system shocks do not exist in the system, we find that almost all banks appear to hold more capital; secondly, we also consider the situation where the system shocks exist in the system; we find that almost all banks tend to hold little capital on four risk allocation mechanisms. We further find that despite the heterogeneity in macroprudential capital requirements, all risk allocation mechanisms bring a substantial decrease in the systemic risk. The risk allocation mechanism based on ΔCoVaR decreases the average default probability the most. Our results suggest that financial stability can be substantially improved by implementing macroprudential regulations for the banking system.

Macroprudential capital requirements and systemic risk

2012 ◽  
Vol 21 (4) ◽  
pp. 594-618 ◽  
Author(s):  
Céline Gauthier ◽  
Alfred Lehar ◽  
Moez Souissi
Keyword(s):  
Systemic Risk ◽  
Capital Requirements

scholarly journals France

2019 ◽  
Vol 19 (325) ◽  
Author(s):  
Keyword(s):  
Business Model ◽  
Systemic Risk ◽  
European Central Bank ◽  
Capital Requirements ◽  
Cost Structure ◽  
Prudential Supervision ◽  
European Central ◽  
Full Responsibility ◽  
Main Challenge ◽  
Crd Iv

The Less Significant Institutions (LSI) sector in France is very small in terms of market share and is diversified by size and business model (Table 1). It proved itself resilient during the financial crisis and is not a source of systemic risk. The sector has a high cost structure and faces a number of competitive and other challenges. The regulatory framework, based on the Capital Requirements Regulation (CRR)/Capital Requirements Directive (CRD) IV, is the same as for Significant Institutions (SIs) but the supervisory framework under the Single Supervisory Mechanism (SSM) is very different. The French Prudential Supervision and Resolution Authority (ACPR) remains the direct supervisor of LSIs but it is now subject to the oversight of the European Central Bank (ECB), which also has full responsibility for certain common procedures. The ACPR has continued its comprehensive supervisory approach, both on-site and off-site, but reflecting the SSM’s emphasis on greater harmonization, it has had to become more procedural and may have lost elements of flexibility. In response to SSM initiatives, the ACPR has sharpened its focus on governance issues, although business model and profitability risk remains the main challenge for the LSI sector.

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