This paper provides market risk calculation for an equity-based trading portfolio. Instead of relying on the purely stochastic internal model method, which banks currently apply in line with the Basel regulatory requirements, we propose to include also alternative price mechanisms from the...

One of the most pressing questions in the aftermath of the financial crisis is how to deal with systemically important financial institutions (SIFIs). The purpose of this paper is to review the recent literature on systemic risk and evaluate the regulation proposals in the Basel III framework...

The macroprudential regulatory framework of Basel III imposes the same capital and liquidity requirements on all banks around the world to ensure global competitiveness of banks. Using an agent-based model of the financial system, we find that this is not a robust framework to achieve...

The paper provides a baseline model for regulatory analysis of systemic liquidity shocks. We show that banks may have an incentive to invest excessively in illiquid long term projects. In the prevailing mixed strategy equilibrium the allocation is inferior from the investor’s point of view...

Systemic risk now occupies centre stage in discussions of bank regulatory reform. Systemic risk is often seen as a problem of size, operational complexity, interconnectivity and contagion. It is less often discussed in terms of the institutional framework of legal rules and principles within...

In this paper we develop empirical measures for the strength of spillover effects. Modifying and extending the framework by Diebold and Yilmaz (2011), we quantify spillovers between sovereign credit markets and banks in the euro area. Spillovers are estimated recursively from a vector...

Systemic risk now occupies centre stage in discussions of bank regulatory reform. Systemic risk is often seen as a problem of size, operational complexity, interconnectivity and contagion. It is less often discussed in terms of the institutional framework of legal rules and principles within...

We examine the pervasive view that equity is expensive which leads to claims that high capital requirements are costly and would affect credit markets adversely. We find that arguments made to support this view are either fallacious, irrelevant, or very weak. For example, the return on equity...

This paper analyses Delta CoVaR proposed by Adrian and Brunnermeier (2008) as a tool for identifying/ranking systemically important institutions and assessing interconnectedness. We develop a test of significance of Delta CoVaR that allows determining whether or not a financial institution can...

Die globale Finanzmarktkrise 2007-2009 hat gezeigt, wie stark ganze Volkswirtschaften von der Stabilität eines reibungslos funktionierenden Finanzsystems abhängen. Problematisch ist beispielsweise die Systemrelevanz einzelner Akteure, da diese im Notfall mit öffentlichen Mitteln gerettet...