The Leverage Ratio Over the Cycle

39 Pages Posted: 17 Nov 2014

See all articles by Michael Brei

Michael Brei

Université Paris Ouest - Nanterre, La Défense - EconomiX

Leonardo Gambacorta

Bank for International Settlements (BIS); Centre for Economic Policy Research (CEPR)

Date Written: November 2014

Abstract

This paper analyses how the Basel III leverage ratio (Tier 1 capital/exposure) behaves over the cycle. The analysis proposes a setup to test for the cyclical properties of bank capital ratios, taking into account structural shifts in banks' behaviour during the global financial crisis and its aftermath. Using a large data set covering international banks headquartered in 14 advanced economies for the period 1995-2012, we find that the Basel III leverage ratio is significantly more countercyclical than the riskweighted regulatory capital ratio: it is a tighter constraint for banks in booms and a looser constraint in recessions.

Keywords: leverage, capital ratios, procyclicality, global financial crisis

JEL Classification: E43, E52, C32

Suggested Citation

Brei, Michael and Gambacorta, Leonardo, The Leverage Ratio Over the Cycle (November 2014). BIS Working Paper No. 471, Available at SSRN: https://ssrn.com/abstract=2524503

Michael Brei (Contact Author)

Université Paris Ouest - Nanterre, La Défense - EconomiX ( email )

200 Avenue de la République
Nanterre cedex, Nanterre Cedex 92000
France

Leonardo Gambacorta

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
246
Abstract Views
1,046
rank
136,353
PlumX Metrics