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Systemic capital requirements

In: Macroprudential regulation and policy

  • Lewis Webber

    (Bank of England)

  • Matthew Willison

    (Bank of England)

The credit risk that an individual bank poses to the rest of the financial system depends on its size, the type of exposures it has to the real economy, and its obligations to other institutions. This paper describes a system-wide risk management approach to calibrating individual banks’ capital requirements that takes into account these factors and which correspond to a policymaker’s chosen target for systemic credit risk. The optimisation strategy identifies the minimum level of aggregate capital for the system and its distribution across banks that are consistent with a chosen objective for systemic credit risk. This parameterises a trade-off between efficiency and stability.

(This abstract was borrowed from another version of this item.)

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This chapter was published in:
  • Bank for International Settlements, 2011. "Macroprudential regulation and policy," BIS Papers, Bank for International Settlements, number 60, December.
  • This item is provided by Bank for International Settlements in its series BIS Papers chapters with number 60-06.
    Handle: RePEc:bis:bisbpc:60-06
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    1. Lelyveld, Iman van & Liedorp, Franka, 2006. "Interbank Contagion in the Dutch Banking Sector: A Sensitivity Analysis," MPRA Paper 806, University Library of Munich, Germany.
    2. Larry Eisenberg & Thomas H. Noe, 2001. "Systemic Risk in Financial Systems," Management Science, INFORMS, vol. 47(2), pages 236-249, February.
    3. Lelyveld, Iman van & Liedorp, Franka, 2004. "Interbank Contagion in the Dutch Banking Sector," MPRA Paper 651, University Library of Munich, Germany, revised 11 Jul 2005.
    4. Prasanna Gai & Nigel Jenkinson & Sujit Kapadia, 2007. "Systemic risk in modern financial systems: analytics and policy design," Journal of Risk Finance, Emerald Group Publishing, vol. 8(2), pages 156-165, March.
    5. Upper, Christian, 2011. "Simulation methods to assess the danger of contagion in interbank markets," Journal of Financial Stability, Elsevier, vol. 7(3), pages 111-125, August.
    6. Elsinger, Helmut & Lehar, Alfred & Summer, Martin, 2005. "Using Market Information for Banking System Risk Assessment," MPRA Paper 817, University Library of Munich, Germany.
    7. Anat R. Admati & Peter M. DeMarzo & Martin F. Hellwig & Paul Pfleiderer, 2010. "Fallacies, Irrelevant Facts, and Myths in the Discussion of Capital Regulation: Why Bank Equity is Not Expensive," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2010_42, Max Planck Institute for Research on Collective Goods.
    8. Piergiorgio Alessandri & Prasanna Gai & Sujit Kapadia & Nada Mora & Claus Puhr, 2009. "Towards a Framework for Quantifying Systemic Stability," International Journal of Central Banking, International Journal of Central Banking, vol. 5(3), pages 47-81, September.
    9. Celine Gauthier & Alfred Lehar & Moez Souissi, 2010. "Macroprudential Regulation and Systemic Capital Requirements," Staff Working Papers 10-4, Bank of Canada.
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