The Influence of Economic Factors on the Capital Buffer Calibration for Systemically Important Institutions in the European Union

Abstract

Capital requirements are key elements in banking regulation. As the failure of a systemically important institution poses a risk to the whole economy, they have to meet special regulations. Our research uses a unique data set to show the influence of economic factors on the capital buffer calibration for Other Systemically Important Institutions (O-SIIs). We show that the scoring process to identify and rank O-SIIs is comparable in the different countries of the EU, but the respective equity requirements are not. Nations with higher unemployment and a higher amount of non-performing loans demand less capital from their banks. Hence, their country average of capital buffer requirements per score depends on the economic situation rather than the scoring process as such.

Keywords: banking regulation, systemically important institutions, equity buffer, economic influence on regulation, buffer calibration

JEL Classification: E5, E58, G21, G18, G28