Policymakers often underestimate the level of systemic risk in the banking system when risks are only assessed at the level of individual bank balance sheets, according to a Bank of England paper published on Thursday.

Lewis Webber and Matthew Willison, the paper's authors, describe a system-wide risk-management approach to deriving capital requirements for banks that reflect the impact their failure would have on the wider banking system and the likelihood of contagious losses occurring. The