After the financial crisis financial regulators increased banks’ capital adequacy ratios (CET1/RWA) requirements in order to make the financial system more resilient. The new capital requirements could be achieved through different channels, some of which might affect bank’s ability to...

This paper uses a stylized simulation model to assess the potential impact of transition risk on banks' balance sheets and establishes a basis for calibrating relevant macro-prudential instruments. We show that even in the short run, a fire-sale mechanism could amplify an initially contained...