BIS paper finds leverage ratio more countercyclical than other capital ratios
Leverage ratio tightens during booms and loosens during recessions
The leverage ratio is more effective at tightening in booms and loosening during recessions than other capital ratios, research published by the Bank for International Settlements (BIS) has found.
The working paper, The leverage ratio over the cycle, by Michael Brei and Leonardo Gambacorta, bases its results on data derived from the financial statements of 109 international banks headquartered in a range of advanced economies, from 1995–2012.
The authors find that in normal times, the leverage
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