A leverage-based measure of financial stability

Tobias Adrian, Karol Borowiecki and Alexander Tepper

Journal of Financial Intermediation, 2022, vol. 51, issue C

Abstract: The size and the leverage of financial market investors and the elasticity of demand of unlevered investors define MinMaSS, the smallest market size that can support a given degree of leverage. The financial system’s potential for financial crises can be measured by the stability ratio, the ratio of total market size to MinMaSS. We use that financial stability metric to gauge the buildup of vulnerability in the run-up to the 1998 Long-Term Capital Management crisis and argue that policymakers could have detected the potential for the crisis.

Keywords: Leverage; Financial crisis; Financial stability; Minimum market size for stability; MinMaSS; Stability ratio; Long-Term Capital Management; LTCM (search for similar items in EconPapers)
JEL-codes: G01 G10 G20 G21 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1042957321000085
Full text for ScienceDirect subscribers only

Related works:
Working Paper: A Leverage-Based Measure of Financial Stability (2021)
Working Paper: A Leverage-Based Measure of Financial Stability (2018)
Working Paper: A Leverage-Based Measure of Financial Stability (2018)
Working Paper: A Leverage-Based Measure of Financial Instability (2014)
Working Paper: A Leverage-Based Measure of Financial Instability (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinin:v:51:y:2022:i:c:s1042957321000085

DOI: 10.1016/j.jfi.2021.100907

Access Statistics for this article

Journal of Financial Intermediation is currently edited by Elu von Thadden

More articles in Journal of Financial Intermediation from Elsevier
Bibliographic data for series maintained by Catherine Liu ().