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Renzo Corrias

27 March 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 7
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Abstract
This study analyses whether the ability of the euro area banking system to withstand potential shocks while minimising taxpayers’ costs has changed in the ten years since the financial crisis as a consequence of the impact of post-crisis reforms on bank capital and loss-absorbing capacity. The results show that the average probability of default of banks decreased from 3.5% in 2007 to 1.1% in 2017, less than a third of its pre-crisis value. In addition, under conservative assumptions on the scope of liabilities affected by the bail-in tool, banks’ loss-absorbing capacity has increased from 7.2% to 12.0% of total assets owing to the introduction of larger capital buffers and the new resolution framework, which enhances banks’ loss-absorbing capacity via the bail-in tool. Finally, the potential intervention of the Single Resolution Fund has further increased the loss-absorbing capacity of the system to 16.9% of total assets. Considering all these three factors, the ability of the banking system to absorb losses while minimising costs to taxpayers has increased more than 3-fold over the last ten years. When considering a broader scope for the bail-in tool, the system’s loss-absorbing capacity has increased to 55.5% of total assets, which corresponds to an overall 12-fold increase in its ability to absorb losses while minimising taxpayers’ costs.
JEL Code
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
29 October 2019
MACROPRUDENTIAL BULLETIN - ARTICLE - No. 9
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Abstract
The post-crisis regulatory framework introduced multiple requirements on banks’ capital and liquidity positions, sparking a discussion among policymakers and academics on how the various requirements interact with one another. This article contributes to the discussion on the interaction of different regulatory metrics by empirically examining the interaction between the liquidity coverage ratio (LCR) and the net stable funding ratio (NSFR) for banks in the euro area. The findings suggest that the two liquidity requirements are complementary and constrain different types of banks in different ways, similarly to the risk-based and leverage ratio requirements in the capital framework. This dispels claims that the LCR and the NSFR are redundant and underlines the need for a faithful and consistent implementation of both measures (and the entire Basel III package more broadly) across all major jurisdictions, to maintain a level playing field at the global level and to ensure that the post-crisis regulatory framework delivers on its objectives.
JEL Code
G01 : Financial Economics→General→Financial Crises
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
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