Do buffer requirements for european systemically important banks make them less systemic?

Carmen Broto, Luis Fernández Lafuerza () and Mariya Melnychuk ()
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Luis Fernández Lafuerza: Banco de España
Mariya Melnychuk: Banco de España

No 2243, Working Papers from Banco de España

Abstract: Buffers for systemically important institutions (SIIs) were designed to mitigate the risks posed by these large and complex banks. With a panel data model for a sample of listed European banks, we demonstrate that capital requirements for SIIs effectively reduce the perceived systemic risk of these institutions, which we proxy with the SRISK indicator in Brownlees and Engle (2017). We also study the impact of the adjustment mechanisms that banks use to comply with SII buffer requirements and their contribution to systemic risk. The results show that banks mainly respond to higher SII buffers by increasing their equity, as intended by the regulators. Once we control for the options SIIs employ to fulfil these requirements and SII characteristics (e.g. total asset size), we find a residual effect of having SII status. This result suggests that being an SII provides a positive signal to markets by further decreasing its contribution to systemic risk.

Keywords: capital requirements; systemically important institutions; systemic risk; SRISK; macroprudential policy (search for similar items in EconPapers)
JEL-codes: C54 E58 G21 G32 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-12
New Economics Papers: this item is included in nep-cba, nep-des, nep-eec and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: Do Buffer Requirements for European Systemically Important Banks Make Them Less Systemic (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:2243

DOI: 10.53479/24876

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