Allocating Systematic and Unsystematic Risks in a Regulatory Perspective

This paper discusses the contributions of financial entities to a global reserve from a regulatory perspective. We introduce axioms of decentral- ization, additivity and compatibility with risk ordering, which should be satisfied by the contributions of the entities and we characterize the set of coherent contributions compatible with these axioms. Then, we explain how to disentangle the systematic and unsystematic risk components of these contributions. Finally, we discuss the usual relationship between baseline reserve and reglementary required capital, and propose alternative solutions to the question of procyclical required capital.