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TCH Publishes Research Note on the Methodology Used to Calibrate the U.S. GSIB Capital Surcharge

Bill Nelson and Francisco Covas
TCH Publishes Research Note on the Methodology Used to Calibrate the U.S. GSIB Capital Surcharge

TCH’s Research Department has published a note on the methodology used to calibrate the U.S. global systemically important bank holding companies (GSIB) capital surcharge. This research note provides an overview and assesses the efficacy of the methodology used to determine the capital surcharge for each GSIB. The research note identifies two key shortcomings: (i) the methodology does not estimate the systemic losses that would occur if each GSIB were to fail, instead the losses are simply assumed to be proportional to selected bank characteristics; and (ii) the estimated relationship between capital levels and odds of failure used to calibrate the surcharge is very sensitive to the number of banks included and the time period used in the empirical analysis.

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