Systemic Risk, Bank\u27s Capital Buffer, and Leverage

This paper measures individual bank\u27s impact on banking systemic risk and examines the effect of individual bank\u27s capital buffer and leverage to bank\u27s systemic risk impact in Indonesia during 2010-2014. Using Merton\u27s distance-to-default to measure systemic risk, the study shows a significant negative relationship between bank\u27s capital buffer and systemic risk. High capital buffer tends to lowering bank\u27s impact on systemic risk. Bank\u27s leverage level also influences its contribution to systemic risk, even though the impact is much lower compared to that of capital buffer impact