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Volume 67, Issue 4

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Leverage Ratio and its Impact on the Resilience of the Banking Sector and Efficiency of Macroprudential Policy

Hodula, Martin; Holub, Libor; Pfeifer, Lukáš; Pikhart, Zdeněk

Year: 2017   Volume: 67   Issue: 4   Pages: 277-299

Abstract: Basel III responded to the financial crisis by redefining and expanding the capital requirements for risk-weighted assets and by proposing the introduction of a leverage ratio which sets a minimum level of capital for banks in relation to total exposures. The capital requirement is being increased primarily through the active use of macroprudential capital buffers. As a result, it was proposed that the leverage ratio requirement should also take into account the level of capital buffers and thus become a macroprudential policy tool. This article examines the relationship between capital and leverage ratios and discusses the options for, and effects of, introducing a macroprudential leverage ratio. We find that the capital and leverage ratios complement each other and that the introduction of a macroprudential leverage ratio could, under certain circumstances, enhance the effectiveness of a macroprudential policy.

JEL classification: G2, G18, G21

Keywords: capital ratio, leverage ratio, macroprudential policy, VAR

RePEc: xx

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