Global Systemically Important Banks Regulation: 'Blessing' or 'Curse'?
Posted: 21 May 2019
Date Written: April 25, 2019
In this paper we examine important recent regulatory changes that focus on G-SIBs, aiming to shed light on whether markets believe that being a G-SIB is good, a “blessing”, or bad, “a curse”. We analyse three events, one related to the designation of a bank as a G-SIB, and two to the additional capital surcharges and TLAC requirements, applicable to these banks. Interestingly, we find that each event corresponds to a different hypothesis; the first one is aligned with the profit-based hypothesis, the second one with the regulatory burden hypothesis, and the third one with the irrelevance hypothesis. We note an interesting “oxymoron” when looking at the first and second events; G-SIB designation is perceived by the market as good news, but subsequent measures attached to this status are perceived as bad news! We find this “oxymoron” to be mostly driven by Eurozone banks. Cross-sectional analysis reveals that banks with lower capital and liquidity ratios benefited more from the new regulations, but suffered more, as a result of the additional capital surcharges.
Keywords: Global Systemically Important Banks, Event study, Regulatory reforms, Capital surcharges, Total loss absorbing capacity
JEL Classification: G01, G14, G21, G28
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