EU bank deleveraging

Pierluigi Bologna, Marianna Caccavaio () and Arianna Miglietta ()
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Marianna Caccavaio: Banca d'Italia

No 235, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We analyse the deleveraging process with reference to a sample of European banks from December 2011 to June 2013 and find that the leverage ratio (measured as assets to equity) has declined on average from 28.6 to 25.0. Its standard deviation fell from 8.2 to 6.5. About 2/3 of the deleveraging has been achieved by raising common equity while 1/3 took place by reducing balance sheet assets. The deleveraging has been more �good� (raising capital and reducing non-core assets) than �ugly� (indiscriminate asset sales) even though only a few banks in our sample managed to pursue it also through a reduction in bad assets. Based on the US experience, we argue that European banks have not yet completed their deleveraging, although what has been done to date is more substantive that it appears prima facie given the generalized increase in banks� sovereign exposure.

Keywords: leverage; deleveraging; European banks; financial stability (search for similar items in EconPapers)
JEL-codes: G01 G21 G28 (search for similar items in EconPapers)
Date: 2014-09
New Economics Papers: this item is included in nep-ban and nep-eec
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:opques:qef_235_14

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