Bank leverage and capital bias adjustment through the macroeconomic cycle

Andy Jia-Yuh Yeh

Journal of Risk

Abstract: We assess the quantitative effects of the recent proposal for more robust bank capital adequacy. Our theoretical proof and evidence accord with the core thesis that banks become more stable by increasing their equity capital cushion to absorb extreme losses in times of severe financial stress. This analysis contributes to the ongoing policy debate on total capital adequacy. Our Monte Carlo simulation helps develop an analytical solution for the default probability adjustment through the macroeconomic cycle. This study poses a conceptual challenge to the normative view that banks should maintain high leverage over time.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-risk/7721056/bank- ... -macroeconomic-cycle (text/html)

Related works:
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:rsk:journ4:7721056

Access Statistics for this article

More articles in Journal of Risk from Journal of Risk
Bibliographic data for series maintained by Thomas Paine ().