Bank leverage, financial fragility and prudential regulation

Olivier Bruno, Andre Cartapanis and Eric Nasica ()
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Eric Nasica: GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur

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Abstract: We analyse the determinants of banks' balance-sheet and leverage-ratio dynamics and their role in increasing financial fragility. Our results are twofold. First, we show that there is a value of bank's leverage that minimises financial fragility. Second, we show that this value depends on the overall business climate, the expected value of the collateral and the riskless interest rate. This result leads us to advocate the establishment of anadjustableleverage ratio, depending on economic conditions, rather than the fixed ratio provided for under the new Basel III regulation.

Keywords: Bank Leverage; Leverage ratios; Financial Instability; Prudential Regulation (search for similar items in EconPapers)
Date: 2013-08-23
New Economics Papers: this item is included in nep-ban, nep-cba and nep-rmg
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Working Paper: Bank Leverage, Financial Fragility and Prudential Regulation (2014)
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