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Jonathan Smith
- 25 November 2015
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2015Details
- Abstract
- The Basel III leverage ratio aims to constrain the build-up of excessive leverage in the banking system and to enhance bank stability. Concern has been raised, however, that the non-risk-based nature of the leverage ratio could incentivise banks to increase their risk-taking. This special feature presents theoretical considerations and empirical evidence for EU banks that a leverage ratio requirement should only lead to limited additional risk-taking relative to the induced benefits of increasing loss-absorbing capacity, thus resulting in more stable banks.
- JEL Code
- G00 : Financial Economics→General→General