A Leverage-Based Measure of Financial Instability

Tobias Adrian, Karol Borowiecki and Alexander Tepper

No 688, Staff Reports from Federal Reserve Bank of New York

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 fraction 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: E58 G01 G10 G20 (search for similar items in EconPapers)
Pages: 38
Date: 2014-08-01
Note: Revised February 2021.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr688.pdf Full text (application/pdf)
https://www.newyorkfed.org/research/staff_reports/sr688.html Summary (text/html)

Related works:
Journal Article: A leverage-based measure of financial stability (2022)
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)
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:fip:fednsr:688

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Staff Reports from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().