Can Nash inform capital requirements? Allocating systemic risk measures

Key Points

• Proposes Nash allocation rule using game theory for systemic risk capital requirements
• Addresses allocation gap: much research on measuring systemic risk levels, less on distributing to individual banks
• Banks compete in theoretical game to reduce individual capital contributions

Implications

Could provide fairer, theoretically-grounded method for regulators to assign capital requirements across banking system.

Action Required

Regulators should evaluate game theory approaches alongside current systemic risk allocation methods.