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Do Buffer Requirements for European Systemically Important Banks Make Them Less Systemic

Author

Listed:
  • Carmen Broto

    (Banco de España)

  • Luis Fernández Lafuerza

    (Banco de España)

  • Mariya Melnychuk

    (Banco de España)

Abstract

With a panel data model for a sample of listed European banks, we demonstrate that capital requirements for systemically important institutions (SIIs) effectively reduce the perceived systemic risk of these institutions, which we proxy with the SRISK indicator in Brownlees and Engle (2017). We also study the impact of the adjustment mechanisms that banks use to comply with SII requirements. The results show that banks mainly respond to higher SII buffers by increasing their equity. Once we control for the options SIIs employ to fulfill these requirements and SII characteristics, we find a residual effect of having SII status.

Suggested Citation

  • Carmen Broto & Luis Fernández Lafuerza & Mariya Melnychuk, 2025. "Do Buffer Requirements for European Systemically Important Banks Make Them Less Systemic," International Journal of Central Banking, International Journal of Central Banking, vol. 21(1), pages 235-272, January.
    • Handle: RePEc:ijc:ijcjou:y:2025:q:1:a:5
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