Macroprudential Regulation: A Risk Management Approach

Sweder van Wijnbergen and Daniël Dimitrov
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Daniël Dimitrov: University of Amsterdam

No 23-002/IV, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We address the problem of regulating the size of banks’ macroprudential capital buffers by using market-based estimates of systemic risk and by developing a modeling mechanism through which capital buffers can be allocated efficiently across systemic banks. First, a Distance-to-Default type measure relates a bank’s default risk to its capital requirements. Second, a correlation structure in the default dependencies between banks is estimated from co-movements in the single-name CDS spreads of the underlying banks. Third, risk minimization and equalization approaches are adopted to allocate the capital requirements in line with a policy balancing the social costs and benefits of higher capital requirements. The model is applied to the European banking sector.

Keywords: systemic risk; regulation; implied market measures; financial institutions; CDS rates (search for similar items in EconPapers)
JEL-codes: G01 G18 G20 G38 (search for similar items in EconPapers)
Date: 2023-01-20
New Economics Papers: this item is included in nep-ban and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Macroprudential Regulation: A Risk Management Approach (2023)
Working Paper: Macroprudential Regulation: A Risk Management Approach (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20230002

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