Do Higher Capital Standards Always Reduce Bank Risk? The Impact of the Basel Leverage Ratio on the U.S. Triparty Repo Market

The Basel III Leverage Ratio, as originally agreed upon in December 2010, has recently undergone revisions and updates – both in relation to those proposed by the Basel Committee on Banking Supervision – as well as proposals introduced in the United States. Whilst recent proposals have been introduced by the Basel Committee to improve, particularly, the denominator component of the Leverage Ratio, new requirements have been introduced in the U.S to upgrade and increase these ratios, and it is those updates which relate to the Basel III Supplementary Leverage Ratio that have primarily generated a lot of interests. This is attributed not only to concerns that many subsidiaries of US Bank Holding Companies (BHCs) will find it cumbersome to meet such requirements, but also to potential or possible increases in regulatory capital arbitrage: a phenomenon which plagued the era of the original 1988 Basel Capital Accord and which also partially provided impetus for the introduction of Basel II. This paper is aimed at providing an analysis of the recent updates which have taken place in respect of the Basel III Leverage Ratio and the Basel III Supplementary Leverage Ratio – both in respect of recent amendments introduced by the Basel Committee and proposals introduced in the United States. As well as highlighting and addressing gaps which exist in the literature relating to liquidity risks, corporate governance and information asymmetries, by way of reference to pre-dominant based dispersed ownership systems and structures, as well as concentrated ownership systems and structures, this paper will also consider the consequences – as well as the impact - which the U.S Leverage ratios could have on Basel III. There are ongoing debates in relation to revision by the Basel Committee, as well as the most recent U.S proposals to update Basel III Leverage ratios and whilst these revisions have been welcomed to a large extent, in view of the need to address Tier One capital requirements and exposure criteria, there is every likelihood, indication, as well as tendency that many global systemically important banks (GSIBS), and particularly their subsidiaries, will resort to capital arbitrage. What is likely to be the impact of the recent proposals in the U.S.? The recent U.S proposals are certainly very encouraging and should also serve as impetus for other jurisdictions to adopt a pro-active approach – particularly where existing ratios or standards appear to be inadequate. This paper also adopts the approach of evaluating the causes and consequences of the most recent updates by the Basel Committee, as well as those revisions which have taken place in the U.S, by attempting to balance the merits of the respective legislative updates and proposals. The value of adopting leverage ratios as a supplementary regulatory tool will also be illustrated by way of reference to the impact of the recent legislative changes on risk taking activities, as well as the need to also supplement capital adequacy requirements with the Basel Leverage ratios and the Basel liquidity standards.

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A comparative analysis of the relationship among capital, risk and efficiency in the Eurozone and the U.S. banking institutions

Risk Governance and Control Financial Markets & Institutions ◽

10.22495/rgcv10i2p1 ◽

2020 ◽

Vol 10 (2) ◽

pp. 8-20

Author(s):

Dimitra Loukia Kolia ◽

Simeon Papadopoulos

Keyword(s):

Investment Banks ◽

Bank Risk ◽

Data Envelopment ◽

Bank Capital ◽

Managerial Behaviors ◽

Banking Institutions ◽

Three Stage Least Squares ◽

The Impact ◽

The Relationship ◽

The U.S

In this paper, we investigate the relationship among capital, risk and efficiency in Eurozone and the U.S. banking institutions. We also assess the determinants of bank capital, risk and efficiency providing evidence of how the interrelationship and the managerial behaviors vary per type of bank (retail, commercial and investment banks). Concerning the methodology, we employ the input-oriented CCR model of data envelopment analysis developed by Charnes, Cooper, and Rhodes (1978) to estimate efficiency. We also apply the Z-score to calculate bank risk and the ratio of the value of total equity to total assets as an indicator of bank capital. Moreover, the relationship among capital, risk and efficiency of banking institutions is investigated by employing the three-stage least squares (3SLS) model, developed by Zellner and Theil (1962). Our main findings indicate that risk and capital are positively linked in the U.S. and Eurozone banks. The findings also suggest that efficiency has a negative and significant effect on bank risk in the majority of the banks of our sample. Additionally, we may conclude that the impact of risk and capital on efficiency levels is sensitive to the type of bank. As regards the effect of the variable efficiency on capital, the results are negative for all the banks in our sample.

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The Impact of Sexual Harassment on Likelihood of Reenlisting in the U.S. Military, 2002

PsycEXTRA Dataset ◽

10.1037/e565062012-001 ◽

2008 ◽

Author(s):

Juanita M. Firestone ◽

Richard J. Harris

Keyword(s):

Sexual Harassment ◽

The Impact ◽

The U.S

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Role of Credit Rating in determining Capital structure: Evidence from Non-Financial sector of Pakistan

Studies of Applied Economics ◽

10.25115/eea.v38i3.3066 ◽

2020 ◽

Vol 38 (3) ◽

Cited By ~ 1

Author(s):

Shoaib Ali ◽

Imran Yousaf ◽

Muhammad Naveed

Keyword(s):

Capital Structure ◽

Credit Rating ◽

Least Square ◽

Annual Data ◽

Leverage Ratio ◽

Financial Decisions ◽

Financial Firms ◽

High Level ◽

The Impact ◽

The Capital Structure

This paper aims to examine the impact of external credit ratings on the financial decisions of the firms in Pakistan. This study uses the annual data of 70 non-financial firms for the period 2012-2018. It uses ordinary least square (OLS) to estimate the impact of credit rating on capital structure. The results show that rated firm has a high level of leverage. Moreover, Profitability and tanagability are also found to be a significantly negative determinant of the capital structure, whereas, size of the firm has a significant positive relationship with the capital structure of the firm. Besides, there exists a non-linear relationship between the credit rating and the capital structure. The rated firms have higher leverage as compared to the non-rated firms. The high and low rated firms have a low level of leverage, while mid rated firms have a higher leverage ratio. The finding of the study have practical implications for the manager; they can have easier access to the financial market by just having a credit rating no matter high or low. Policymakers must stress upon the rating agencies to keep improving themselves as their rating severs as the measure to judge the creditworthiness of the firm by both the investors and management as well.

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