Identifying and Regulating Systemically Important Banks: Assessing Risks to the Banking System

<p>&nbsp; &nbsp; &nbsp; &nbsp; &nbsp; The theme topicality is caused by the insufficient level of the topic scientific and practical elaboration of &nbsp;issues related to the identification and state regulation of systemically important credit institutions in the Russian banking sector as well as the significant concentration of capital and the key active-passive operations in several of the largest banks of the country, the need to develop a clear ideology and practical methods of regulating activities of systemically important banks.</p><p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; The aim of this paper is to study the basic approaches to identifying criteria of systemic importance of financial institutions and measuring the banks&acute; contribution to the systemic risk as well as to propose an effective methodology of detecting systemically credit organizations in the Russian banking sector.</p><p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Achieving this goal involves accomplishing the following tasks:</p><ul><li>to consider different points of view concerning the concept and forms of systemic risk, to examine and compare models and methodologies that cover different aspects of systemic liquidity risk;</li><li>to review existing studies on the issue of estimating systemic importance of the credit institutions, to analyze the international experience of identifying national systemically important banks;</li><li>to examine the impact of banks` indicators on their contribution to the systemic risk econometric techniques, in accordance with empirical results to reveal the relevant determinants of systemic importance of banks, allowing them to be a major source of systemic risk;</li><li>to construct a rating of &nbsp;banks based on their systemic relevance;</li><li>to explain the need for special regulation of systemically important credit institutions and to make proposals&nbsp; concerning assigning additional capital requirements for systemically important banks.</li></ul><p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Key research results include the following aspects:</p><ul><li>The methodology of&nbsp; identifying systemically important credit institutions in the Russian banking system, based on the recommendations of the Basel Committee on Banking Supervision and taking into account the specifics of the Russian banking system, was developed.</li><li>The dependence model of the degree of banks&acute; contribution to the systemic risk from a set of banking factors was proposed. Based on the regression analysis, weights for indicators of banks&acute; systemic relevance were differentiated according to&nbsp; some important features of the Russian banking system.&nbsp; Key banks&acute; characteristics, which are the relevant determinants of systemic importance, were revealed.</li><li>The proposed approach has been applied to the Russian large banks. The quantitative scores of systemic importance of domestic credit institutions were evaluated. The ranking of banks based on their systemic importance was received.</li><li>Depending on the level of systemic importance, stricter requirements for these credit institutions were determined,&nbsp; quantitative assessment of the required additional charges to capital for systemically important banks was conducted.</li></ul><p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Practical implication of this research work involves the possibility of using the results in expert-analytical work on behalf of regulators to improve the approach to defining the criteria of systemic importance of credit institutions in the Russian banking sector.&nbsp;</p>