This paper investigates how to increase the capital buffers that can be released in Italy in the event of shocks (i.e. the macroprudential space), in order to support the supply of credit to the economy and limit possible procyclical effects. The Bank of Italy, as the macroprudential authority for the Italian banking sector, can activate the systemic risk buffer (SyRB) to prevent risks for which no other prudential instruments are already in place.
This study illustrates the risks associated with the structural characteristics of the Italian banking system and presents two complementary analyses carried out to identify the appropriate level of the SyRB. The first, based on past bank losses, suggests a buffer of at least 1 per cent of domestic assets assets weighted for credit and counterparty risks to Italy. The second, based on a cost-benefit analysis, suggests that the net benefits to the economy would be maximized for SyRB values between 1 and 2 per cent.
