Macroprudential Regulation: A Risk Management Approach

Arbeitspapier

We address the problem of regulating the size of banks' macroprudential capital buffers by using market-based estimates of systemic risk and by developing a modeling mechanism through which capital buffers can be allocated efficiently across systemic banks. First, a Distance-to-Default type measure relates a bank's default risk to its capital requirements. Second, a correlation structure in the default dependencies between banks is estimated from co-movements in the single-name CDS spreads of the underlying banks. Third, risk minimization and equalization approaches are adopted to allocate the capital requirements in line with a policy balancing the social costs and benefits of higher capital requirements. The model is applied to the European banking sector.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Tinbergen Institute Discussion Paper ; No. TI 2023-002/IV

Classification and Topics

• Classification: Wirtschaft ; Financial Crises ; Financial Institutions and Services: General ; General Financial Markets: Government Policy and Regulation ; Corporate Finance and Governance: Government Policy and Regulation
• Subject: systemic risk ; regulation ; implied market measures ; financial institutions ; CDS rates

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): van Wijnbergen, Sweder ; Dimitrov, Daniël
• Event: Veröffentlichung
• (who): Tinbergen Institute
• (where): Amsterdam and Rotterdam
• (when): 2023

Further information

• Handle: http://hdl.handle.net/10419/273813
• Last update: 10.03.2025, 11:45 AM CET