Benefits and costs of a higher bank “leverage ratio”

James Barth and Stephen Matteo Miller

Journal of Financial Stability, 2018, vol. 38, issue C, 37-52

Abstract: This study reports estimates of the marginal benefits and costs of increasing the regulatory minimum bank equity-to-asset “leverage ratio” from 4 to 15 percent. Benefits arise from reducing the probability of a banking crisis. Costs arise from reduced lending, should banks pass off higher equity costs onto borrowers. Net benefits increase with a higher discount rate, a smaller tax advantage of debt, a lower non-financial corporate debt-to-capital ratio, a higher cost of crises, a longer duration of crises or if crises have some permanent effects. Baseline estimates indicate that the benefits equal costs at 19 percent.

Keywords: Bank regulation; Benefit-cost analysis; Capital adequacy standards; U.S. banking crises (search for similar items in EconPapers)
JEL-codes: D61 G28 K20 L51 N21 N22 N41 N42 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (26)

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Working Paper: Benefits and Costs of a Higher Bank Leverage Ratio (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:38:y:2018:i:c:p:37-52

DOI: 10.1016/j.jfs.2018.07.001

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