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Nadya Wildmann

Macro Prud Policy&Financial Stability

Division

Financial Regulation and Policy

Current Position

Financial Stability Expert

Fields of interest

Financial Economics

Email

Nadya.Wildmann@ecb.europa.eu

25 August 2021
OCCASIONAL PAPER SERIES - No. 260
Details
Abstract
The Basel Committee on Banking Supervision (BCBS) framework used to identify global systemically important banks (G-SIBs) is based on banks’ balance sheet information, leaving information derived from market data untapped. Among the most widely used market-based systemic risk measures, Adrian and Brunnermeier’s (2016) Delta-Conditional Value at Risk (ΔCoVaR) best captures the system-wide loss-given-default (sLGD) and conditional impact concepts underlying the BCBS GSIB methodology. In this paper we investigate, using a global sample of the largest banks, whether a score based on ΔCoVaR could be useful for ranking G-SIBs or for calibrating an alternative G-SIB indicator weighting scheme. In our first analysis we find that the ΔCoVaR score is positively correlated with all five of the systemic importance categories of the BCBS framework. However, considerable information/noise with regard to the ΔCoVaR score remains unexplained. Before more is known about this residual, a score based on ΔCoVaR is difficult to interpret and is inappropriate for identifying G-SIBs in a policy context. Besides, we find that a ranking based on ΔCoVaR is subject to substantial variability over time and across empirical specifications. In our second analysis we use ΔCoVaR to place the current static weighting scheme for G-SIB indicators on an empirical footing. To do this we regress ΔCoVaR on factors derived from the G-SIB indicators. This approach allows us to focus on the part of ΔCoVaR which can be explained by balance sheet information which alleviates the identified issues of interpretability and variability. The derived weights are highest for the cross-jurisdictional activity (43%) and size (27%) categories. We conclude that ΔCoVaR is not suitable for use as an alternative G-SIB score but could be useful for policymakers to pursue an empirically grounded weighting scheme for the existing G-SIB indicators.
JEL Code
G20 : Financial Economics→Financial Institutions and Services→General
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
28 June 2021
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 13
Details
Abstract
This article studies the impact of the ECB’s dividend recommendations on banks’ lending and loss-absorption capacity during the COVID-19 crisis. It finds that the policy has been effective in mitigating the potential procyclical adjustment of banks. Banks that did not distribute previously planned dividends increased their lending by around 2.4% and their provisions by approximately 5.5%, thus strengthening their capacity to absorb losses. Notably, the recommendations appear to have mitigated the procyclical behaviour of banks closer to the threshold for automatic restrictions on distributions. Overall, the recommendations were successful in conserving capital and helping the banking system support the real economy and facilitate the recognition of future losses.
JEL Code
E51 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Money Supply, Credit, Money Multipliers
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G35 : Financial Economics→Corporate Finance and Governance→Payout Policy
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
16 September 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 8
Details
Abstract
The expansion of the EU macroprudential toolkit to also include capital buffers applied at sectoral level may require the cross-border recognition of these instruments. This article explores the relevance of sectoral cross-border credit provided via foreign branches or direct cross-border lending in the SSM area and analyses the effects of the implementation of mandatory reciprocity arrangements. Our findings provide some evidence supporting the introduction of mandatory reciprocity arrangements for sectoral capital buffers where exposures are material in order to ensure a level playing field and pre-empt future leakages. This is important to foster the effectiveness of macroprudential policies because financial services provided via foreign branches or direct cross-border exposures would otherwise not be subject to a macroprudential measure taken in a host Member State.
JEL Code
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
16 September 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 8
Details
Abstract
As discussions progress on the potential design of sectoral capital buffers both at the Basel Committee on Banking Supervision (BCBS) and European levels, this article discusses the advantages and shortcomings of the sectoral application of the countercyclical capital buffer for addressing sectoral systemic risks. A dynamic stochastic general equilibrium (DGSE) model is used to explore and compare the transmission channels of the countercyclical capital buffer (CCyB) and the sectoral countercyclical capital buffer (SCCyB), as well as their role in enhancing the resilience of banks and taming the procyclicality of credit. The model-based policy exercise indicates that, if risks are confined to one particular credit sector, a SCCyB could prove more effective than the CCyB in strengthening bank resilience to the target sector and in mitigating sectoral credit imbalances.
JEL Code
C68 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→Computable General Equilibrium Models
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G01 : Financial Economics→General→Financial Crises
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
30 April 2018
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 5
Details
Abstract
The European Commission’s proposals for the reform of EU banking rules aim to complete the post-crisis reform agenda and to address shortcomings in the current regulatory framework, notably in the Capital Requirements Regulation (CRR) and the Capital Requirements Directive (CRD IV). Once implemented, the changes will strengthen the regulatory architecture in the European Union, thereby contributing to the reduction of risks in the banking sector and paving the way for commensurate progress in completing the banking union. This article outlines and explains the ECB’s key messages concerning these proposals that are of particular importance for macroprudential regulation and policy. In particular, the ECB considers that the ongoing discussions on the CRR/CRD IV package provide the opportunity to make targeted changes to the macroprudential toolkit to make it more efficient and consistent. In the medium term, a comprehensive review of the macroprudential toolkit is still necessary to streamline procedures within the framework and to complement it with tools to address risks in the real estate and non-banking sectors.
JEL Code
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
30 June 2014
OCCASIONAL PAPER SERIES - No. 5
Details
Abstract
This paper presents the analysis underpinning the ESRB Recommendation on guidance on setting countercyclical buffer rates (ESRB 2014/1). The Recommendation is designed to help authorities tasked with setting the countercyclical capital buffer (CCB) to operationalise this new macroprudential instrument. It follows on from the EU prudential rules for the banking system that came into effect on 1 January 2014.
JEL Code
G21 : Financial Economics→Financial Institutions and Services→Banks, Depository Institutions, Micro Finance Institutions, Mortgages
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies