THE SYSTEMIC RISK BUFFER – A CHALLENGING INSTRUMENT FOR ASSESSING

• Main Author: BADEA IRINA - RALUCA
• Format: Article
• Language: English
• Published: Academica Brâncuşi 2015-08-01
• Series: Analele Universităţii Constantin Brâncuşi din Târgu Jiu : Seria Economie
• Subjects: systemic risk; financial crisis; systemic risk buffer; Basel III; Sistemically Important Financial Institutions
• Online Access: http://www.utgjiu.ro/revista/ec/pdf/2015-04/21_Badea%20Irina.pdf

The consequences of the global financial crisis have changed the orientation of the regulators from the micro towards the macroeconomic level, which encompasses the financial system as a whole, with its components as individual financial institutions. Needless to say that there is an inherent risk to which every participant to the market is exposed, the systemic risk. Therefore, this paper aims at presenting systemic risk in a clear manner, paying attention to and highlighting several approaches regarding systemic risk in literature and practice. Moreover, the mechanism of systemic risk transmission points out the channels through which systemic risk spreads and affects the real economy. There is also presented a new component of the macroprudential regulation, i.e. the systemic risk buffer (SRB), which is an important instrument to fight against systemic risk along with the other buffers stipulated in the Basel III standards. Hence, the subject dealt in this paper represents a realistic outlook upon the situation of the financial system at the moment, in its struggle to forecast a potential systemic threat and the instruments needed to counteract it in order to diminish its negative effects. In the last part of the paper there is presented evidence from a few countries that started to implement the SRB and G-SII or O-SII buffers or are phased for implementation to the extent of 2019. Tracking the vulnerabilities of the system as a whole, of each of its components and the tranmission channels of systemic risk should be the first step to make before taking any measures against a monetary or financial phenomenon.