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 great financial turmoil that started 2007 has brought bank regulation back into the political debate. There is talk about imposing new regulations on banks and other financial intermediaries. Yet, we are not convinced that it is completely understood how the existing regulation affects...

This paper presents a forward-looking approach to measure systemic solvency risk using contingent claims analysis (CCA) as a theoretical foundation for determining an institution's default risk based on the uncertainty in its asset value relative to promised debt payments over time. Default risk...

After the recent financial crisis (2007-2010), many doubts on the reliability of the mathematical models to measure the financial risks have arisen. As a consequence, model risk has been a source of concern for financial regulators. This risk includes, among others, incorrect mathematical...

This paper proposes an approximate formula to measure the credit risk of portfolios under random recoveries. This formula is based on a Taylor expansion and enables having recoveries that are correlated with the default rates over the business cycle. We show how to calibrate the corresponding...

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...

This work extends the contagion model introduced by Nier et al. (2007) to inhomogeneous networks. We preserve the convenient description of a financial system by a sparsely parameterized random graph but add several relevant inhomogeneities, namely well-connected banks, financial institutions...

M-PRESS-CreditRisk is a new top-down macro stress testing framework that can help supervisors gauge banks' capital adequacy related to credit risk. For the first time, it combines calibration of microprudential capital requirements and macroprudential buffers in a unified, coherent 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...