Market-oriented banking, financial stability and macro-prudential indicators of leverageChristian Calmès () and Raymond Théoret Journal of International Financial Markets, Institutions and Money, 2013, vol. 27, issue C, 13-34 Abstract: In order to complement the macro-prudential framework introduced in Basel III, we propose a new breed of indicators based on the degree of leverage which helps track the time-varying dimension of bank systemic risk—a key aspect of financial stability. Given the new sources of liquidity generated by off-balance-sheet activities, time-varying indicators of leverage become more informative of the leverage dynamics. We introduce a Kalman filter procedure to study such elasticity-based measures of broad leverage. This approach enables the detection of the build-up of financial imbalances—as measured by the increase in bank risk—years before what the traditional assets to equity ratio predicts. Most elasticity measures we propose appear in line with the historical episodes, well tracking the cyclical pattern of leverage. Importantly, the degree of total leverage suggests that market-oriented banking exerts a stronger influence on leverage during expansion periods. Keywords: Leverage; Financial stability; Market-oriented banking; Liquidity; Basel III; Kalman filter (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:27:y:2013:i:c:p:13-34 DOI: 10.1016/j.intfin.2013.07.004 Access Statistics for this article Journal of International Financial Markets, Institutions and Money is currently edited by I. Mathur and C. J. Neely More articles in Journal of International Financial Markets, Institutions and Money from Elsevier |
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