Abstract

http://ssrn.com/abstract=1723145
 
 

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Leverage Ratio Requirement and Credit Allocation Under Basel III


Ilkka Kiema


University of Helsinki

Esa Jokivuolle


Bank of Finland - Research

December 9, 2010


Abstract:     
We show in a theoretical model that the introduction of the leverage ratio requirement, when it interacts with the risk-based IRB capital requirements, might lead to less lending to low-risk customers and to increased lending to high-risk customers. If such allocational effects are counter-productive to financial stability, then they may pose a trade-off against the alleged positive financial stability effects of the leverage ratio requirement.

Number of Pages in PDF File: 28

Keywords: Bank regulation, Basel III, capital requirements, credit risk, leverage ratio requirement

JEL Classification: D41, D82, G14, G21, G28

working papers series


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Date posted: December 12, 2010 ; Last revised: December 16, 2010

Suggested Citation

Kiema, Ilkka and Jokivuolle, Esa, Leverage Ratio Requirement and Credit Allocation Under Basel III (December 9, 2010). Available at SSRN: http://ssrn.com/abstract=1723145 or http://dx.doi.org/10.2139/ssrn.1723145

Contact Information

Ilkka Kiema
University of Helsinki ( email )
University of Helsinki
Helsinki, AL FIN-00014
Finland
Esa Jokivuolle (Contact Author)
Bank of Finland - Research ( email )
P.O. Box 160
FIN-00101 Helsinki
Finland
+358 10 831 2309 (Phone)
HOME PAGE: http://www.bof.fi/en/suomen_pankki/organisaatio/asiantuntijoita/jokivuolle_esa/
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