Regulating the financial cycle: An integrated approach with a leverage ratio

Dirk Schoenmaker and Peter Wierts

Economics Letters, 2015, vol. 136, issue C, 70-72

Abstract: We propose a regulatory approach for restricting debt financing as an amplification mechanism across the financial system. A stylised model illustrates the trade-off between static and time-varying limits on leverage in dampening the financial cycle. Whereas the traditional view on regulation focuses on equity capital as a buffer against exogenous risks, our approach focuses instead on debt financing and endogenous feedback mechanisms.

Keywords: Financial cycle; Financial supervision; Leverage ratio (search for similar items in EconPapers)
JEL-codes: E58 G18 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Working Paper: Regulating the Financial Cycle: An Integrated Approach with a Leverage Ratio (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:136:y:2015:i:c:p:70-72

DOI: 10.1016/j.econlet.2015.08.020

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