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The New Era of Capital Regulation Complexity

Author

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  • Lukas Pfeifer

    (Czech National Bank, Prague, Czech Republic and University of Economics in Prague, Department of Monetary Theory and Policy, Prague, Czech Republic)

Abstract

The paper describes the mechanism of overlapping leverage ratio requirement and macroprudential capital buffers and associated implications for the resilience of the banking sector. It examines to what extent capital buffers can be usable to absorb losses in the case of the Czech banking sector and what impact this may have on the lending capacity of the real economy. The non-usability portion of capital buffers in the Czech banking sector amounts to CZK 27 billion (i.e. 24% of the combined capital buffer). The lending potential of the capital buffer decreases by CZK 630 billion to CZK 1.6 trillion due to overlaps under otherwise equal conditions. The results indicate that the leverage ratio requirement may prevent the capital buffers from being fully effective and can reduce created macroprudential space.

Suggested Citation

  • Lukas Pfeifer, 2023. "The New Era of Capital Regulation Complexity," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 12(3), pages 179-197.
    • Handle: RePEc:cbk:journl:v:12:y:2023:i:3:p:179-197
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    File URL: http://www.cbcg.me/repec/cbk/journl/vol12no3-9.pdf
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    More about this item

    Keywords

    capital ratio requirement; leverage ratio requirement; overlaps; capital buffers.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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