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Modelling bank leverage and financial fragility under the new minimum leverage ratio of Basel III regulation

Author

Listed:
  • Olivier Bruno

    (COMUE UCA - COMUE Université Côte d'Azur (2015-2019))

  • André Cartapanis
  • Eric Nasica

    (COMUE UCA - COMUE Université Côte d'Azur (2015-2019), UNS - Université Nice Sophia Antipolis (1965 - 2019), GREDEG - Groupe de Recherche en Droit, Economie et Gestion - UNS - Université Nice Sophia Antipolis (1965 - 2019) - CNRS - Centre National de la Recherche Scientifique - UniCA - Université Côte d'Azur)

Abstract

We analyse the determinants of banks' balance sheet and leverage ratio dynamics, and its role in increasing financial fragility. Our results are twofold. First, we show there exists a value of bank leverage minimising financial fragility. Second, this value depends on the overall business climate and the expected value of the collateral provided by firms. Based on our findings, we argue that an adjustable leverage ratio restriction dependent on economic conditions would be preferable to the fixed ratio included in the new Basel III regulation.

Suggested Citation

  • Olivier Bruno & André Cartapanis & Eric Nasica, 2018. "Modelling bank leverage and financial fragility under the new minimum leverage ratio of Basel III regulation," Post-Print halshs-01870797, HAL.
    • Handle: RePEc:hal:journl:halshs-01870797
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    Cited by:

    1. Zaher Abdel Fattah Al-Slehat, 2022. "The Effect of Equity Financing Structure and Asset Utilization Efficiency on Financial Fragility," International Business Research, Canadian Center of Science and Education, vol. 15(12), pages 132-132, December.

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