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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
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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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Handle: RePEc:fau:fauart:v:67:y:2017:i:4:p:277-299