Macroprudential Ring-Fencing

Tomas Konecny and Lukáš Pfeifer

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

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.

Keywords: Financial stability; macroprudential policy; ring-fencing (search for similar items in EconPapers)
JEL-codes: E58 E61 G18 (search for similar items in EconPapers)
Date: 2019-12
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-rmg
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https://www.cnb.cz/export/sites/cnb/en/economic-re ... nload/rpn_4_2019.pdf

Related works:
Journal Article: Macroprudential ring-fencing (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:rpnrpn:2019/04

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