Leverage Ratios for Different Bank Business Models
Credit and Capital Markets, Vol. 50, No. 4, pp. 545-573, 2017
Posted: 21 Jan 2017 Last revised: 16 Dec 2017
Date Written: December 1, 2017
Abstract
The development of the Basel III leverage ratio does not consider the different risk characteristics of bank business models. All banks have to achieve the same requirements even if a high-risk business model is chosen. For that reason, leverage ratios which are adjusted to the risk-profile of retail, wholesale, and trading banks are developed. Based on Value-at-Risk and Expected Shortfall calculations, the left-hand tail of a net return on non-risk-weighted assets distribution of 120 European banks is analyzed. Retail banks are less risky and can withstand financial distress with a smaller amount of capital.
Keywords: Bank Business Models, Bank Capital Requirements, Expected Shortfall, Leverage Ratio, Value-At-Risk
JEL Classification: G21, G28, G32
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