The financial crisis showed that European banks were much more fragile than expected. This column discusses some of the changes implemented by banks since the crisis. Overall, their responses have been minor. Currently, most banks remain highly leveraged, yet yielding low returns. Redressing this could require a reduction of non-core assets and/or a slashing of operating costs. Ultimately, something has to give. European banks have yet to reach a post-crisis equilibrium.
Marco Onado, Sunday, February 23, 2014
Javier Villar Burke, Thursday, November 14, 2013
This column discusses the concept of leverage, its components and how to measure and monitor it. It proposes the marginal leverage ratio – a valuable supplement to the traditional absolute leverage ratio – as an early warning tool to signal episodes of excessive leverage and to determine if and how banks deleverage. By capturing the dynamics of leveraging-deleveraging cycles better than the absolute leverage ratio, the marginal leverage ratio provides an indication of risk that a stable absolute leverage ratio can conceal.
David Miles, Wednesday, April 27, 2011
The global crisis has called into question how banks are run and how they should be regulated. Highly leveraged banks went under, threatening to drag down the entire financial system with them. Here, David Miles of the Bank of England’s Monetary Policy Committee, shares his personal views on the optimal leverage for banks. He concludes that it is much lower than is currently the norm.