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Measuring off-Balance-Sheet Leverage

Author

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  • Mr. Peter Breuer

Abstract

The simultaneous unwinding of leveraged positions can trigger financial market turbulence. Although balance-sheet measures of leverage are available, it is useful to construct a measure of leverage that incorporates both on- and off-balance-sheet activities. This paper provides measures of leverage implicit in derivative contracts by decomposing the contracts into cash market equivalent components. A leverage ratio can then be calculated for this replicating portfolio, which consists of own funds (equity) and borrowed funds equivalents (debt). Methods for aggregating leverage by institution and by markets are presented. The interaction between leverage and risk is discussed, and a modified capital adequacy ratio is calculated, which captures off-balance-sheet exposure.

Suggested Citation

  • Mr. Peter Breuer, 2000. "Measuring off-Balance-Sheet Leverage," IMF Working Papers 2000/202, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2000/202
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    Citations

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    Cited by:

    1. Andrew Lee Smith, 2013. "House Prices, Heterogeneous Banks and Unconventional Monetary Policy Options," WORKING PAPERS SERIES IN THEORETICAL AND APPLIED ECONOMICS 201311, University of Kansas, Department of Economics.
    2. Mr. Manmohan Singh & Zohair Alam, 2018. "Leverage—A Broader View," IMF Working Papers 2018/062, International Monetary Fund.
    3. Arena, Marco, 2008. "Bank failures and bank fundamentals: A comparative analysis of Latin America and East Asia during the nineties using bank-level data," Journal of Banking & Finance, Elsevier, vol. 32(2), pages 299-310, February.
    4. Breuer, Peter, 2002. "Measuring off-balance-sheet leverage," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 223-242, March.
    5. Chiara Oldani, 2005. "An Overview of the Literature about Derivatives," Macroeconomics 0504004, University Library of Munich, Germany.
    6. Katia D'Hulster, 2009. "The Leverage Ratio : A New Binding Limit on Banks," World Bank Publications - Reports 10224, The World Bank Group.
    7. Adrian, Tobias & Kiff, John & Shin, Hyun Song, 2018. "Liquidity, Leverage, and Regulation Ten Years after the Global Financial Crisis," CEPR Discussion Papers 13350, C.E.P.R. Discussion Papers.

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