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The market impact of systemic risk capital surcharges

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  • Gündüz, Yalin

Abstract

This paper tests whether an increase or decrease of the capital surcharge for being a global systemically important bank (G-SIB) envisaged by regulators has an impact on the CDS prices of these banks. We find evidence that the CDS spreads of a G-SIB bank increase (decrease) after the announcement of a higher (lower) capital surcharge. However, this effect is temporary, as the mean CDS spreads revert to pre-announcement level, dropping sharply after the initial rise. Our analysis contributes to the debate on whether being designated as a G-SIB bank necessarily leads to implicit "too-big-to-fail" subsidies. The findings imply that the investors immediately update their beliefs on the systemic risk of the bank after the bucket reallocation announcement and temporarily demand more hedging against systemic risk.

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  • Gündüz, Yalin, 2020. "The market impact of systemic risk capital surcharges," Discussion Papers 09/2020, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:092020
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    More about this item

    Keywords

    Too-big-to-fail; CDS spreads; systemically important banks; G-SIBs; G-SIB capital surcharges;
    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

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