Macroprudential Regulation: A Risk Management Approach

73 Pages Posted: 8 Feb 2023 Last revised: 25 Oct 2023

See all articles by Daniel Dimitrov

Daniel Dimitrov

University of Amsterdam; Tinbergen Institute; De Nederlandsche Bank - Financial Markets Division

Sweder van Wijnbergen

Universiteit van Amsterdam; Tinbergen Institute; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: February 6, 2023

Abstract

We use market-based estimates of systemic risk and a structural framework for credit risk assessment to address the problem of regulating banks’ macroprudential capital buffers. We sketch three approaches to allocating capital buffers across systemic banks: equalizing the expected impact between systemic and non-systemic institutions, minimizing aggregate systemic risk, and balancing the social costs and benefits of capital requirements. In our application to the European banking sector we find substantial differences with current capital requirements. Capital buffers play a key role in managing banks’ contributions to systemic distress, so our findings have material implications for systemic risk in the EEA.

Keywords: systemic risk, regulation, capital buffers, implied market measures, financial institutions, CDS

JEL Classification: G01, G20, G18, G38

Suggested Citation

Dimitrov, Daniel and van Wijnbergen, Sweder, Macroprudential Regulation: A Risk Management Approach (February 6, 2023). De Nederlandsche Bank Working Paper No. 765, 2023, Available at SSRN: https://ssrn.com/abstract=4349908 or http://dx.doi.org/10.2139/ssrn.4349908

Daniel Dimitrov (Contact Author)

University of Amsterdam ( email )

Spui 21
Amsterdam, 1018 WB
Netherlands

Tinbergen Institute

De Nederlandsche Bank - Financial Markets Division ( email )

P.O.B. 98
1000 AB Amsterdam
Netherlands

Sweder Van Wijnbergen

Universiteit van Amsterdam ( email )

Roetersstraat 11
Amsterdam, 1018 WB
Netherlands
+31 20 525 4011 / 4203 (Phone)
+31-35-624 91 82 (Fax)

Tinbergen Institute

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

Centre for Economic Policy Research (CEPR)

London
United Kingdom

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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