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The Aggregated Leverage Ratio and the Detection of Financial Vulnerability :Evidence from the United States and European Countries

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Listed:
  • Sonia Ondo-Ndong
  • Sandra Rigot

Abstract

The aim of this paper is to put forward a relevant indicator that could help supervisors to regulate the excessive use of leverage which gives rise to systemic risk. We suggest the aggregated leverage ratio named “Global Aggregated Leverage Ratio” (GALR), which encompasses the activity of commercial and investment banks. We test this indicator through logit regressions over the period 2001-2008. We find evidence that the GALR may be a good leading indicator of the build up of financial vulnerabilities then it could be integrated into macro-prudential tools. Moreover, it is costless to compute and consequently easy to implement.

Suggested Citation

  • Sonia Ondo-Ndong & Sandra Rigot, 2011. "The Aggregated Leverage Ratio and the Detection of Financial Vulnerability :Evidence from the United States and European Countries," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 54(1), pages 5-20.
    • Handle: RePEc:bxr:bxrceb:2013/93447
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    Citations

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    Cited by:

    1. E Philip Davis & Dilruba Karim & Dennison Noel, 2019. "Bank Leverage Ratios, Risk and Competition - An Investigation Using Individual Bank Data," National Institute of Economic and Social Research (NIESR) Discussion Papers 499, National Institute of Economic and Social Research.
    2. Deyanira Bernal Dom¨ªnguez & Mar¨ªa Luisa Saavedra Garc¨ªa & Lydia Mar¨ªa L¨®pez Barraza, 2014. "Financial Analysis Management of Companies in a Region of Mexico: the Need of a Financial Ratios Annual Directory," Review of Economics & Finance, Better Advances Press, Canada, vol. 4, pages 64-78, August.

    More about this item

    Keywords

    Leverage; Securitization; Prudential regulation; Systemic risk; Commercial/investment banks;
    All these keywords.

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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