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Understanding the Basel III Leverage Ratio Requirement

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  • Dina Baptista

Abstract

One of the main reasons for the global financial crisis was the excessive build up of leverage by the banks. To tackle this issue, the new set of Basel III regulations calls for a minimum leverage ratio requirement for banks, in addition to the existing risk-weighted capital requirement. In this article we explore in detail the main motivations for the introduction of the leverage ratio requirement. We also study how the banks' leverage ratio and the risk-weighted capital ratio are complementary to each other and how they co-move over the business cycle. Finally, we present the case of Portuguese banks faced with this new regulatory instrument.

Suggested Citation

  • Dina Baptista, . "Understanding the Basel III Leverage Ratio Requirement," Economic Bulletin and Financial Stability Report Articles and Banco de Portugal Economic Studies, Banco de Portugal, Economics and Research Department.
    • Handle: RePEc:ptu:bdpart:r201712
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