Template-Type: ReDIF-Paper 1.0
Series: Tinbergen Institute Discussion Papers
Creation-Date: 2023-01-20
Number: 23-002/IV
Author-Name: Sweder van Wijnbergen
Author-Workplace-Name: University of Amsterdam
Author-Name: Daniël Dimitrov
Author-Workplace-Name: University of Amsterdam
Title: Macroprudential Regulation: A Risk Management Approach
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.
Classification-JEL: G01, G20, G18, G38
Keywords: systemic risk, regulation, implied market measures, financial institutions, CDS rates
File-URL: https://papers.tinbergen.nl/23002.pdf
File-Format: application/pdf
File-Size: 1.824.998 bytes
Handle: RePEc:tin:wpaper:20230002