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Macroprudential Ring-Fencing

Author

Listed:
  • Tomas Konecny
  • Lukas Pfeifer

Abstract

This paper focuses on ring-fencing in the specific context of macroprudential policy and its effects on financial integration in the EU over time. It views macroprudential ring-fencing as a restriction on the regulatory capital mobility of cross-border banking groups as a result of macroprudential measures. We find two main factors behind the observed heterogeneity of macroprudential policy with the potential for ring-fencing - credit risk materialisation and the share of foreign-owned banks' assets related to the gradual phase-in of capital reserves. The heterogeneity of risk weights should be partly limited by the new CRD V/CRR II regulatory package and other prudential backstops (such as the leverage ratio requirement and the output floor). On the other hand, the new regulatory package contains limits on structural reserves, which may lead to a situation where regulatory design precludes the application of macroprudential measures corresponding to the level of systemic risk.

Suggested Citation

  • Tomas Konecny & Lukas Pfeifer, 2019. "Macroprudential Ring-Fencing," Research and Policy Notes 2019/04, Czech National Bank.
    • Handle: RePEc:cnb:rpnrpn:2019/04
    as

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    References listed on IDEAS

    as
    1. Beck, Roland & Reinhardt, Dennis & Rebillard, Cyril & Ramos-Tallada, Julio & Peeters, Jolanda & Paternò, Francesco & Wörz, Julia & Beirne, John & Weissenseel, Lisa, 2015. "The side effects of national financial sector policies: framing the debate on financial protectionism," Occasional Paper Series 166, European Central Bank.
    2. Sophia Döme & Stefan Kerbl, 2017. "Comparability of Basel risk weights in the EU banking sector," Financial Stability Report, Oesterreichische Nationalbank (Austrian Central Bank), issue 34, pages 68-89.
    3. Ms. Rima A Turk, 2017. "Heterogeneity of Bank Risk Weights in the EU: Evidence by Asset Class and Country of Counterparty Exposure," IMF Working Papers 2017/137, International Monetary Fund.
    4. Lorenz Emter & Martin Schmitz & Marcel Tirpák, 2019. "Cross-border banking in the EU since the crisis: What is driving the great retrenchment?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(2), pages 287-326, May.
    5. repec:ecb:ecbops:2014166 is not listed on IDEAS
    6. Lukas Pfeiffer & Libor Holub & Zdenek Pithart & Martin Hodula, 2017. "Leverage Ratio and its Impact on the Resilience of the Banking Sector and Efficiency of Macroprudential Policy," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 67(4), pages 277-299, August.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial stability; macroprudential policy; ring-fencing;
    All these keywords.

    JEL classification:

    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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