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Leverage Ratio and its Impact on the Resilience of the Banking Sector and Efficiency of Macroprudential Policy

Lukas Pfeiffer (), Libor Holub, Zdenek Pithart and Martin Hodula
Additional contact information
Lukas Pfeiffer: Banking Institute/College of Banking
Libor Holub: Czech National Bank, Prague
Zdenek Pithart: University of Economics, Prague

Czech Journal of Economics and Finance (Finance a uver), 2017, vol. 67, issue 4, 277-299

Abstract: Basel III responded to the financial crisis by redefining and expanding the capital requirements for risk-weighted assets and by proposing the introduction of a leverage ratio which sets a minimum level of capital for banks in relation to total exposures. The capital requirement is being increased primarily through the active use of macroprudential capital buffers. As a result, it was proposed that the leverage ratio requirement should also take into account the level of capital buffers and thus become a macroprudential policy tool. This article examines the relationship between capital and leverage ratios and discusses the options for, and effects of, introducing a macroprudential leverage ratio. We find that the capital and leverage ratios complement each other and that the introduction of a macroprudential leverage ratio could, under certain circumstances, enhance the effectiveness of a macroprudential policy.Classification-JEL: G14; G15; C22

Keywords: capital ratio; leverage ratio; macroprudential policy; VAR (search for similar items in EconPapers)
JEL-codes: G2 G18 G21 (search for similar items in EconPapers)
Date: 2017
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