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Towards a Framework for Calibrating Macroprudential Leverage Limits for Alternative Investment Funds

Author

Listed:
  • van der Veer, Koen
  • Levels, Anouk
  • Chaudron, Raymond
  • Grill, Michael
  • Petrescu, Monica
  • Weistroffer, Christian
  • Molestina Vivar, Luis

Abstract

Alternative investment funds (AIFs) in Europe operate without regulatory leverage limits. Competent authorities within the EU have the legal power to impose macroprudential leverage limits on AIFs, but no authority has implemented this tool so far. This joint European Central Bank-De Nederlandsche Bank (DNB) special feature (i) presents a macroprudential case for limiting the use of leverage by investment funds, (ii) develops a framework to inform the design and calibration of macroprudential leverage limits to contain the build-up of leverage-related systemic risks by AIFs, and (iii) discusses different design and calibration options. By way of example, it uses supervisory information on AIFs managed by asset managers based in the Netherlands. The article concludes by recommending a way forward to develop an EU-level framework for a harmonised implementation of macroprudential leverage limits for AIFs, which forms a key part of the agenda of the European Systemic Risk Board (ESRB) to develop macroprudential policy beyond banking. JEL Classification: G00

Suggested Citation

  • van der Veer, Koen & Levels, Anouk & Chaudron, Raymond & Grill, Michael & Petrescu, Monica & Weistroffer, Christian & Molestina Vivar, Luis, 2016. "Towards a Framework for Calibrating Macroprudential Leverage Limits for Alternative Investment Funds," Financial Stability Review, European Central Bank, vol. 2.
    • Handle: RePEc:ecb:fsrart:2016:0002:1
    Note: 1280809
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    File URL: https://www.ecb.europa.eu//pub/pdf/fsr/art/ecb.fsrart201611_01.en.pdf
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    More about this item

    Keywords

    AIF; ESRB; leverage limit; macroprudential policy;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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