Paper Info
Title
The Application of Macroprudential Capital Requirements in Managing Systemic Risk.
Abstract
When setting banks regulatory capital requirement based on their contribution to the overall risk of the banking system we need to consider that the risk of the banking system as well as each banks risk contribution changes once bank equity capital gets redistributed. Therefore the present paper provides a theoretical framework to manage the systemic risk of the banking system in Nigeria based on macroprudential capital requirements, which requires banks to hold capital that is proportional to their contribution to systemic risk. Using a sample of 10 Nigerian banks, we reallocate capital in the system based on two scenarios; firstly in the situation where the system shocks do not exist in the system, we find that almost all banks appear to hold more capital; secondly, we also consider the situation where the system shocks exist in the system; we find that almost all banks tend to hold little capital on four risk allocation mechanisms. We further find that despite the heterogeneity in macroprudential capital requirements, all risk allocation mechanisms bring a substantial decrease in the systemic risk. The risk allocation mechanism based on Delta CoVaR decreases the average default probability the most. Our results suggest that financial stability can be substantially improved by implementing macroprudential regulations for the banking system.
Year
DOI
Venue
2018
10.1155/2018/4012163
COMPLEXITY
Field
DocType
Volume
Systemic risk,Equity (finance),Risk allocation,Monetary economics,Artificial intelligence,Capital requirement,Mathematics,Machine learning
Journal
2018
ISSN
Citations 
PageRank 
1076-2787
0
0.34
References 
Authors
1
3
Name
Order
Citations
PageRank
Hong Fan1114.96
Chirongo Moses Keregero200.34
Qianqian Gao300.68