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A Leverage Ratio Rule for Capital Adequacy
Year Of Publication: 2012
Month Of Publication: September
Resource Link: Click here to open
Pages: 10
Download Count: 0
View Count: 1341
Comment Num: 0
Language: English
Source: working paper
Who Can Read: Free
Date: 11-10-2012
Publisher: Administrator
Summary
This paper studies the economic foundations for maximum leverage ratio capital adequacy rules. The paper makes three contributions to the literature. First, we show how to determine the maximum leverage ratio such that the probability of insolvency is less than some predetermined quantity. Two, we show that a leverage ratio rule controls for the same risks as does a Value-at-Risk (VaR) capital adequacy rule. Third, we argue that leverage ratio rules are superior to VaR rules due to reduced model risk, easier estimation, and the simplicity of implementation.
This document is published Journal of Banking and Finance.
http://dx.doi.org/10.1016/j.jbankfin.2012.10.009
This document may be downloaded without charge from SSRN.com by clicking the 'Buy from Publisher' button.
Author(s)
Jarrow, Robert Sign in to follow this author
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