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An effective alternative to the leverage ratio

Author

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  • Kersten Kellermann
  • Carsten-Henning Schlag

Abstract

After the experience of the financial crisis, it is time to implement an instrument in banking supervision that protects the financial market supervisory system from potential mistakes in its application of risk-weighted capital requirements. To this end, the representatives of the G20 countries introduced a leverage ratio in September 2009. For the big Swiss banks, the Swiss financial market supervision authority implemented such a ratio already in November 2008. The leverage ratio is intended to guarantee a specific core capitalization of the banks independently of the results provided by risk measurement methods. By means of balance-sheet data of the big Swiss bank UBS, Kersten Kellermann and Carsten-Henning Schlag, Liechtenstein University, discuss the interaction of risk weighted capital requirements and the leverage ratio; as an alternative supervisory instrument they propose a base risk weighting. This base risk weighting could assume the function of a backstop by reducing the reduction of risk weighted assets by the banks and simultaneously allowing risk weighting to take effect.

Suggested Citation

  • Kersten Kellermann & Carsten-Henning Schlag, 2010. "An effective alternative to the leverage ratio," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(16), pages 26-34, August.
    • Handle: RePEc:ces:ifosdt:v:63:y:2010:i:16:p:26-34
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    References listed on IDEAS

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    1. Christoph Zeitler & Bernd Rudolph & Christian Kirchner & Christoph Kaserer & Markus Ferber, 2010. "Regulation and bank supervision: Do we need a Basel III?," ifo Schnelldienst, ifo Institute - Leibniz Institute for Economic Research at the University of Munich, vol. 63(03), pages 03-20, February.
    2. Kersten Kellermann & Carsten-Henning Schlag, 2010. "Die Reform des Schweizer Eigenmittelregimes für Großbanken," Wirtschaftsdienst, Springer;ZBW - Leibniz Information Centre for Economics, vol. 90(8), pages 531-539, August.
    3. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity, monetary policy, and financial cycles," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 14(Jan).
    4. Kellermann, Kersten, 2010. "Too Big To Fail: Ein gordischer Knoten für die Finanzmarktaufsicht?," KOFL Working Papers 6, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.
    5. Tobias Adrian & Hyun Song Shin, 2008. "Liquidity and financial cycles," BIS Working Papers 256, Bank for International Settlements.
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    Cited by:

    1. Brunhart, Andreas, 2012. "Identification of Liechtenstein's Historic Economic Growth and Business Cycles by Econometric Extensions of Data Series," MPRA Paper 44628, University Library of Munich, Germany.
    2. Kellermann, Kersten & Schlag, Carsten-Henning, 2010. "Das Schweizer Eigenmittelregime für Grossbanken: Work in Progress," KOFL Working Papers 7, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.
    3. Kellermann, Kersten & Schlag, Carsten-Henning, 2010. "Eine effektive Alternative zur Leverage Ratio," KOFL Working Papers 8, Konjunkturforschungsstelle Liechtenstein (KOFL), Vaduz.

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    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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