EU Bank Deleveraging

23 Pages Posted: 16 Jan 2015 Last revised: 21 Jan 2015

Multiple version iconThere are 2 versions of this paper

Date Written: September 2014

Abstract

We analyse the deleveraging process with reference to a sample of European banks from December 2011 to June 2013 and find that the leverage ratio (measured as assets to equity) has declined on average from 28.6 to 25.0. Its standard deviation fell from 8.2 to 6.5. About 2/3 of the deleveraging has been achieved by raising common equity while 1/3 took place by reducing balance sheet assets. The deleveraging has been more “good” (raising capital and reducing non- core assets) than “ugly” (indiscriminate asset sales) even though only a few banks in our sample managed to pursue it also through a reduction in bad assets. Based on the US experience, we argue that European banks have not yet completed their deleveraging, although what has been done to date is more substantive that it appears prima facie given the generalized increase in banks’ sovereign exposure.

Keywords: leverage, deleveraging, European banks, financial stability

JEL Classification: G21, G01, G28

Suggested Citation

Bologna, Pierluigi and Caccavaio, Marianna and Miglietta, Arianna, EU Bank Deleveraging (September 2014). Bank of Italy Occasional Paper No. 235. Available at SSRN: https://ssrn.com/abstract=2550671 or http://dx.doi.org/10.2139/ssrn.2550671

Pierluigi Bologna (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Marianna Caccavaio

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Arianna Miglietta

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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