Examining the Interdependencies Between Leverage and Capital Ratios in the Banking Sector of the Czech Republic

Karel Janda () and Oleg Kravtsov
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Karel Janda: University of Economics

Chapter Chapter 15 in New Trends in Finance and Accounting, 2017, pp 161-172 from Springer

Abstract: Abstract In this paper, we discuss the implications of the Basel III requirements on the leverage ratio for the banking sector in the Czech Republic. We identify the potential binding constraints from regulatory limits and analyze the interactions among leverage and capital ratios over the country’s economic cycle (2007–2014). By analyzing the components of ratios, we conclude that the banks are focusing more on the optimization of risk-weighted assets. Strong co-movement patterns between leverage and assets point to the active management of leverage as a means of expanding and contracting the size of balance sheets and maximizing the utility of the capital. The analysis of correlation patterns among the variables indicates that the total assets (and exposure) in contrast to Tier 1 capital are the main contributors to the cyclical movements in the leverage. The leverage and the total assets also demonstrate a weak correlation with GDP, but a strong co-movement with loans to the private sector.

Keywords: Leverage ratio; Capital ratio; Basel III; Czech republic (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:spr:prbchp:978-3-319-49559-0_15

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DOI: 10.1007/978-3-319-49559-0_15

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