White Paper No. 14, 2010

Criteria for a Workable Approach Towards Bank Levies and Bank Restructuring

One of the major lessons from the current financial crisis refers to the systemic dimension of financial risk which had been almost completely neglected by bankers and supervisors in the pre-2007 years. Accordingly, the most needed change in financial regulation, in order to avoid a repetition of such a crisis in the future, consists of influencing individual bank behaviour such that systemic risk is decreased. We propose a Systemic Risk Charge (SRC), a levy capturing the contribution of any individual bank to the overall systemic risk which is distinct from the institution’s own default risk.