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

Michal Skořepa () and Jakub Seidler

Research and Policy Notes from Czech National Bank, Research and Statistics Department

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.

Keywords: Bank failure; Basel III; capital adequacy; consolidation; systemic importance; public support (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2014-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cfn and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Capital buffers based on banks’ domestic systemic importance: selected issues (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:rpnrpn:2014/01

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