Usability Of Bank Capital Buffers The Role Of Market Expectations PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download Usability Of Bank Capital Buffers The Role Of Market Expectations PDF full book. Access full book title Usability Of Bank Capital Buffers The Role Of Market Expectations.
Author | : José Abad |
Publisher | : International Monetary Fund |
Total Pages | : 61 |
Release | : 2022-01-28 |
Genre | : Business & Economics |
ISBN | : 1616358939 |
Download Usability of Bank Capital Buffers: The Role of Market Expectations Book in PDF, ePub and Kindle
Following the COVID shock, supervisors encouraged banks to use capital buffers to support the recovery. However, banks have been reluctant to do so. Provided the market expects a bank to rebuild its buffers, any draw-down will open up a capital shortfall that will weigh on its share price. Therefore, a bank will only decide to use its buffers if the value creation from a larger loan book offsets the costs associated with a capital shortfall. Using market expectations, we calibrate a framework for assessing the usability of buffers. Our results suggest that the cases in which the use of buffers make economic sense are rare in practice.
Author | : Georg Leitner |
Publisher | : |
Total Pages | : 0 |
Release | : 2023 |
Genre | : |
ISBN | : 9789289961585 |
Download How Usable are Capital Buffers? Book in PDF, ePub and Kindle
This paper analyses banks' ability to use capital buffers in the euro area, taking into account overlapping capital requirements between the risk-based capital framework and the leverage ratio capital framework from 2016 to 2022. This analysis is the first to quantify buffer usability in multiple jurisdictions and across various bank types, identify key drivers of buffer usability and assess the impact of various policy measures using longer time series. The paper shows that while both risk-based and leverage frameworks play a key role in enhancing the resilience of the banking system and ensuring financial stability, their simultaneous application creates interactions that may affect the functioning of capital buffers. In this regard, we investigate to what extent banks could have drawn down regulatory capital buffers in the risk-based framework without breaching current leverage ratio requirements, which is in line with the approach to buffer usability taken in ESRB (2021b). We show that buffer usability was partially constrained in the period examined and is expected to remain so under the current regulatory framework and if risk weight densities (RWDs) remain low. This finding indicates that the leverage ratio constitutes an effective backstop to the risk-based framework, both as regards minimum requirements and capital buffers. Limited buffer usability was identified especially for global systemically important institutions (G-SIIs) that rely largely on internal modelling approaches to calculate risk-based capital requirements, leading to comparably low risk weights and making the leverage ratio relatively more binding. Adding to previous contributions, we find that banks' ability to use capital buffers fluctuated over time, generally increasing before 2019 and decreasing after the start of the coronavirus (COVID-19) pandemic, with substantial heterogeneity across countries. Furthermore, we provide new insights into the relationship between the RWD of a bank and its buffer usability and find that there is a critical RWD range between 25% and 50% for which buffer usability is limited and very sensitive to RWD changes. Additionally, we perform a counterfactual analysis that investigates how a positive neutral countercyclical capital buffer and leverage ratio buffers would have changed buffer usability over time. Finally, we assess the impact of the implementation of the new Basel capital standards (Basel III) and find that full implementation of Basel III will materially increase the usability of capital buffers for G-SII.
Author | : |
Publisher | : |
Total Pages | : |
Release | : 2021 |
Genre | : |
ISBN | : 9789294722461 |
Download Report of the Analytical Task Force on the Overlap Between Capital Buffers and Minimum Requirements Book in PDF, ePub and Kindle
Capital buffers are key macroprudential policy instruments. Regulatory capital buffers ("the buffers") were introduced after the global financial crisis to mitigate systemic risk. Buffers help to ensure the resilience of banks and to conserve their capital by placing constraints on distributions if buffers are breached. Unlike minimum requirements, buffers can be drawn down when losses have to be absorbed during times of stress and are replenished thereafter. Using buffers may thus cushion the financial cycle, especially in the case of the countercyclical capital buffer (CCyB), which is designed to be released by the authorities in a downturn. Banks might not always be able or willing to use their buffers. For the purpose of this report, the "usability" of buffers and excess capital means that banks are able to deplete their buffers without triggering a breach any parallel minimum requirements. The minimum requirements include the leverage ratio (LR), the minimum requirement for own funds and eligible liabilities (MREL) or the risk-weighted capital framework for the upcoming leverage ratio buffer for global systemically important institutions (G-SIIs), also referred to as the G-SII buffer. Even if buffers are usable from this perspective, banks might be unwilling to use them. Banks' willingness to use buffers is beyond the scope of this report and may also depend on factors other than buffer usability.1 However, investigations into banks' willingness to use buffers need to take into account potential regulatory impediments that might be an important reason why banks do not use buffers. Thus, both the ability and the willingness to use buffers may limit the capacity for buffers to cushion shocks. When buffers overlap with parallel minimum requirements, buffer usability is inevitably constrained. EU banking regulation ("the banking package") establishes three parallel frameworks, each with minimum capital requirements: the risk-weighted capital requirements framework aimed at increasing the resilience of banks; the supplementary leverage ratio requirements constraining the build-up of leverage, mitigating the risk of destabilising deleveraging processes and safeguarding against model risk and measurement error; and the framework to facilitate the resolution of failed banks without putting public funds at risk. These three frameworks apply simultaneously, with each of them playing an important role in contributing to the resilience of the banking system. However, the banking package also allows multiple uses of capital across these three frameworks, which in some instances includes the buffers.
Author | : Kiefer de Silva |
Publisher | : |
Total Pages | : 48 |
Release | : 2019 |
Genre | : |
ISBN | : |
Download Quality Versus Quantity Book in PDF, ePub and Kindle
We find that larger US bank holding companies (BHCs) hold lower quality capital buffers than their smaller peers. US BHCs' capital buffer quality is found to be a function of their operational complexity, risk-weighted assets and profitability. We, however, find no evidence that large US BHCs trade-off capital buffer quality with their liquid asset investments. On average, US BHCs narrow the gap between their actual and target buffer quality by 49.5 per cent per quarter. This (buffer quality) adjustment speed, however, is substantially faster than that observed in pre-GFC US studies of buffer size. The well capitalised US BHCs (top 20 percent) adjust their buffer quality 8 percent faster than poorly capitalised ones. The latter seem to face impediments in raising new capital due to higher reputation costs. The costs of adjusting buffers also seem an important explanation for holding higher quality buffers. Our results shed more light on the trade-offs associated with banks holding higher quality capital buffers.
Author | : Mohamed Belkhir |
Publisher | : International Monetary Fund |
Total Pages | : 44 |
Release | : 2019-12-04 |
Genre | : Business & Economics |
ISBN | : 1513519808 |
Download Bank Capital and the Cost of Equity Book in PDF, ePub and Kindle
Using a sample of publicly listed banks from 62 countries over the 1991-2017 period, we investigate the impact of capital on banks’ cost of equity. Consistent with the theoretical prediction that more equity in the capital mix leads to a fall in firms’ costs of equity, we find that better capitalized banks enjoy lower equity costs. Our baseline estimations indicate that a 1 percentage point increase in a bank’s equity-to-assets ratio lowers its cost of equity by about 18 basis points. Our results also suggest that the form of capital that investors value the most is sheer equity capital; other forms of capital, such as Tier 2 regulatory capital, are less (or not at all) valued by investors. Additionally, our main finding that capital has a negative effect on banks’ cost of equity holds in both developed and developing countries. The results of this paper provide the missing evidence in the debate on the effects of higher capital requirements on banks’ funding costs.
Author | : International Monetary Fund. Monetary and Capital Markets Department |
Publisher | : INTERNATIONAL MONETARY FUND |
Total Pages | : 118 |
Release | : 2020-10-23 |
Genre | : Business & Economics |
ISBN | : 9781513554228 |
Download Global Financial Stability Report, October 2020 Book in PDF, ePub and Kindle
Near-term global financial stability risks have been contained as an unprecedented policy response to the coronavirus (COVID-19) pandemic has helped avert a financial meltdown and maintain the flow of credit to the economy. For the first time, many emerging market central banks have launched asset purchase programs to support the smooth functioning of financial markets and the overall economy. But the outlook remains highly uncertain, and vulnerabilities are rising, representing potential headwinds to recovery. The report presents an assessment of the real-financial disconnect, as well as forward-looking analysis of nonfinancial firms, banks, and emerging market capital flows. After the outbreak, firms’ cash flows were adversely affected as economic activity declined sharply. More vulnerable firms—those with weaker solvency and liquidity positions and smaller size—experienced greater financial stress than their peers in the early stages of the crisis. As the crisis unfolds, corporate liquidity pressures may morph into insolvencies, especially if the recovery is delayed. Small and medium-sized enterprises (SMEs) are more vulnerable than large firms with access to capital markets. Although the global banking system is well capitalized, some banking systems may experience capital shortfalls in an adverse scenario, even with the currently deployed policy measures. The report also assesses the pandemic’s impact on firms’ environmental performance to gauge the extent to which the crisis may result in a reversal of the gains posted in recent years.
Author | : Mr. Tobias Adrian |
Publisher | : International Monetary Fund |
Total Pages | : 27 |
Release | : 2022-12-16 |
Genre | : Business & Economics |
ISBN | : |
Download Macro-Financial Stability in the COVID-19 Crisis: Some Reflections Book in PDF, ePub and Kindle
The global financial system has shown remarkable resilience during the COVID-19 pandemic, despite a sharp decline in economic activity and the initial financial market upheaval in March 2020. This paper takes stock of the factors that contributed to this resilience, focusing on the role of monetary and financial policies. In response to the pandemic-induced crisis, major central banks acted swiftly and decisively, cutting policy rates, introducing new asset purchase programs, providing liquidity support for the banking system, and creating several emergency facilities to sustain the flow of credit to the real economy. Several emerging market central banks also deployed asset purchase programs for the first time. While the pandemic crisis has underscored the importance of policies in preventing calamitous financial outcomes, it has also brought to the fore some unintended consequences of policy actions—in particular, of providing prolonged monetary policy support and applying regulation to specific segments of the financial system rather than taking a broader approach—that could undermine financial stability in the future.
Author | : Xiang Fang |
Publisher | : International Monetary Fund |
Total Pages | : 34 |
Release | : 2018-09-28 |
Genre | : Business & Economics |
ISBN | : 1484378369 |
Download The Effects of Higher Bank Capital Requirements on Credit in Peru Book in PDF, ePub and Kindle
This paper offers novel evidence on the impact of raising bank capital requirements in the context of an emerging market: Peru. Using quarterly bank-level data and exploiting the adoption of bank-specific capital buffers, we find that higher capital requirements have a short-lived, negative impact on bank credit in Peru, although this effect becomes statistically insignificant in about half a year. This finding is robust to estimating different specifications to address concerns about the exogeneity of capital requirements. The fact that the reform was gradual and pre-announced and that banks were highly profitable at the time could explain the short-lived effects on credit.
Author | : David Archer |
Publisher | : |
Total Pages | : 90 |
Release | : 2013 |
Genre | : |
ISBN | : 9789291979318 |
Download Central Bank Finances Book in PDF, ePub and Kindle
Author | : |
Publisher | : Lulu.com |
Total Pages | : 294 |
Release | : 2004 |
Genre | : Bank capital |
ISBN | : 9291316695 |
Download International Convergence of Capital Measurement and Capital Standards Book in PDF, ePub and Kindle