The leverage ratio over the cycle

Michael Brei and Leonardo Gambacorta

No 471, BIS Working Papers from Bank for International Settlements

Abstract: This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks' behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find that the Basel III leverage ratio is significantly more countercyclical than the riskweighted regulatory capital ratio: it is a tighter constraint for banks in booms and a looser constraint in recessions.

Keywords: leverage; capital ratios; procyclicality; global financial crisis (search for similar items in EconPapers)
Pages: 40 pages
Date: 2014-10
New Economics Papers: this item is included in nep-ban and nep-cba
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Citations: View citations in EconPapers (35)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:471

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