The Leverage Ratio as a Bank Discipline Device
Revue Economique, Forthcoming
10 Pages Posted: 30 Dec 2010
Date Written: November 1, 2010
Abstract
This paper investigates bank portfolio composition under Basel II where the amount of required capital is determined by bank’s own risk assessment. We particularly show that in presence of asymmetric information between the bank and the supervisor, it has incentives to understate its risk taking which could be curbed by the addition of the simple leverage ratio as suggested in Basel III.
Keywords: Basel II, Basel III, Leverage Ratio, Portfolio Allocation, Information Asymmetries
JEL Classification: G21, G28, G32
Suggested Citation: Suggested Citation
Rugemintwari, Clovis, The Leverage Ratio as a Bank Discipline Device (November 1, 2010). Revue Economique, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1731882
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