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Capital Buffers Based on Banks' Domestic Systemic Importance: Selected Issues

Author

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  • Michal Skorepa
  • Jakub Seidler

Abstract

Regulators in many countries are currently considering ways to impose domestic systemic importance-based capital requirements on banks. Aiming to assist these considerations, this article discusses a number of issues concerning the calculation of a bank's systemic importance to the domestic banking sector, such as the choice of indicators used and the pros and cons of focusing on an individual or consolidated level. Also, the 'equal expected impact' procedure for determining adequate additional capital requirements is presented in detail and some of its properties are discussed. As an illustrative example of the practical use of the procedures presented, systemic importance scores and implied capital buffers are calculated for banks in the Czech Republic. The article also stresses the crucial role of public communication of the motivation for the buffers: regulators should make every effort to explain that the imposition of a non-zero systemic importance-based capital buffer on a bank is not to be interpreted by the markets as a signal that the bank is too big to fail and would therefore be guaranteed a public bail-out if it got into difficulties.

Suggested Citation

  • Michal Skorepa & Jakub Seidler, 2014. "Capital Buffers Based on Banks' Domestic Systemic Importance: Selected Issues," Research and Policy Notes 2014/01, Czech National Bank.
    • Handle: RePEc:cnb:rpnrpn:2014/01
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    References listed on IDEAS

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    Cited by:

    1. Michal Skorepa & Jakub Seidler, 2015. "Capital buffers based on banks’ domestic systemic importance: selected issues," Journal of Financial Economic Policy, Emerald Group Publishing Limited, vol. 7(3), pages 207-220, August.
    2. repec:cnb:ocpubc:fsr1314/2 is not listed on IDEAS
    3. repec:cnb:ocpubv:rb13/2 is not listed on IDEAS
    4. repec:cnb:ocpubv:rb15/2 is not listed on IDEAS
    5. repec:cnb:ocpubv:rb15/1 is not listed on IDEAS
    6. repec:cnb:ocpubv:rb14/1 is not listed on IDEAS
    7. repec:cnb:ocpubv:rb14/2 is not listed on IDEAS

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    More about this item

    Keywords

    Bank failure; Basel III; capital adequacy; consolidation; systemic importance; public support;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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