Revision of Capital Buffer Framework

Silvio Andrae

Chapter 1 in Banking Resilience and Global Financial Stability, 2024, pp 3-33 from World Scientific Publishing Co. Pte. Ltd.

Abstract: The capital buffer concept for banks misses its target: The capital buffers do not harm financial stability. However, they do not make a positive contribution either. Based on sobering practical experience, an alternative capital buffer concept has been developed. What is striking is that capital buffers for a bank no longer consist of seven components. Instead, the capital buffer consists of only two components: a resilience buffer and a sustainability buffer. The alternative capital buffer concept is effective in generating sufficient financial stability. It is not per se about higher capital buffers for banks. Instead, simple and transparent handling is highly beneficial to both banks and supervisors. However, this simple handling requires comprehensive analyses of systemic risks. Stress tests have an essential role to play here.

Keywords: Bank capital; Capital Buffers; Financial Stability; Macroprudential Regulation; Systemic Risks; Accounting Standards; Bank Stability; Financial Reporting; Local GAAP; IAS/IFRS; Lending Risk; Bank Capitalization; Bank Risk-Taking; Credit Risk; Asian Banks; Stability; Financial Development; Banking System; Growth; Regression; Human Resources; Trade: Population; Emerging Economies; Human Capital; Financial Stability; Intellectual Capital Efficiency; Human Capital Efficiency; Structural Capital Efficiency; Relational Capital Efficiency; Resources Based Theory; System Generalize Method of Moments; Competitive Environment; Islamic Banks; Asian Countries; Banking; Regulatory Capital; Bank Performance; Basel Accord; Profitability; Risk; Minimal Capital Requirements; Political Instability; Bank Supervision; 2SLS; Financial Institutions; Bank Holding Companies; Great Recession: FDIC; Financial Markets; Financial Crises; Economic Recessions; Heterogeneity; Systemic Risk; Dodd Frank; Foreign Exchange; Systemic Risk; Turkish Banking Sector; Volatility; Foreign Loans; Domestic Loans; Total Assets; Total Credits; Total Deposits; Interest Rates; Financial Crisis; Risk Management; Competency Development; Banks; Integrated; Resilience; Uncertainty; Pandemic; Risk; Actionable; Financial Stability; Systemic Risk; Crisis Management; Bank Recovery and Resolution; Capital Requirements; Climate Physical Risk; Climate Transition Risk; Digital Finance; Safety Net; Twin Transition; Market Illiquidity; Monetary Policy; Bank Lending Channel; Banks; Shocks; Loan Supply; OECD Countries; Financial Crisis; Interest Rates; Transmission Mechanism; European Monetary Union; European Central Bank; ECB Governing Council; Expansionary Monetary Policy; Trilemma; TARGET2-Balance; Inflation; Transmission Protection Instrument (TPI); ECB Anti-Fragmentation Instrument; Pandemic Emergency Purchase Program (PEPP); Credit-to-GDP Gap; Out-of-Sample Forecasts; Augmented Credit Gap; Countercyclical Capital Buffer; Credit Gap; Decision-making Process; Basel Gap; Forecasting Gaps; One-Sided Gap Series; Two-Sided Gap Series; Altman; Z-Score; Economic Distress; Kazakhstan; Banks; Emerging Market; Multiple Discriminant Analysis; Financial Health; Prediction Accuracy; Wilks' Approach; Direct Approach; Microfinance; Microfinance Institutions; Global Financial Crisis; Covid-19; Social Outreach; Financial Sustainability; Operational Self-Sufficiency; NGOs; Capital Structure; Legal Status; Liquidity Hoarding; Economic Policy Uncertainty; Qatari Banks; Islamic Banks; Endogeneity; Instrumental Variable Approach; Economic Blockade; Asset-Side Liquidity Hoarding; Liability-Side Liquidity Hoarding; Gulf Cooperation Council (search for similar items in EconPapers)
JEL-codes: G2 G21 G24 G28 (search for similar items in EconPapers)
Date: 2024
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