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: https://ideas.repec.org/a/fau/fauart/v67y2017i4p277-299.html
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