Leverage Ratio as a Macroprudential Policy Instrument

Nijole Valinskyte (), Erika Ivanauskaite (), Darius Kulikauskas () and Simonas Krepsta ()
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Nijole Valinskyte: Bank of Lithuania
Erika Ivanauskaite: Bank of Lithuania
Simonas Krepsta: Bank of Lithuania

No 18, Bank of Lithuania Occasional Paper Series from Bank of Lithuania

Abstract: This paper aims to explain the relationship between risk-based and LR requirements and the motivation for the macroprudential use of LR requirements. The rest of the paper is structured as follows. First, we define the LR and the microprudential requirement that is based on it (Chapter 1) and discuss the merits and drawbacks of risk-weighted and nonrisk-weighted capital requirements, assessing how LR requirements can improve the current capital regulation framework (Chapter 2). Then, we turn to the stylized quantitative relationship between the two kinds of requirements and illustrate the rationale for macroprudential LR add-ons (Chapter 3). Further on, we consider legal issues, with a focus on the EU (Chapter 4) and review the country experience with LR requirements (Chapter 5). Finally, we take a look at the LR situation in the Lithuanian banking sector (Chapter 6) and conclude.

Pages: 18 pages
Date: 2018-03-07
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cis, nep-mac and nep-rmg
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