European banks: Between a rock (need of more capital) and a hard place (low profitability)

Marco Onado 23 February 2014

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The financial crisis has put to the forefront the long-debated issue of banks’ capital adequacy, showing that banks were much more fragile than they (and their regulators) pretended, also because they were allowed to push their leverage to levels much higher than any industrial company, or even a hedge fund, has never dreamt of.

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Topics:  Global crisis

Tags:  Europe, bank leverage, post-crisis equilibrium

Assessing leverage in the financial sector through flow data

Javier Villar Burke 14 November 2013

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The build-up of leverage in the banking sector played a prominent role in the Global Crisis.1 A standard description the role of leverage corresponds with the typical profile of a financial bubble as reflected in the evolution of the banks of the Eurostoxx 50 (Figure 1). Surprisingly, the traditional measure of leverage in the banking sector does not show this profile at all (Figure 2).

Figure 1: Eurostoxx 50 Index

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Topics:  International finance

Tags:  deleveraging, financial regulation, global crisis, bank leverage

What is the optimal leverage for a bank?

David Miles 27 April 2011

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At the height of the financial crisis, many highly leveraged banks found that their sources of funding disappeared – withdrawn due to fears over the scale of losses. In the fallout from this banking crisis, the economic damage has been enormous. The recession that hit many developed economies in the wake of the financial crisis was exceptionally severe and the scale of government support to banks has been large and it was needed when fiscal deficits were already ballooning.

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Topics:  Financial markets Global governance Macroeconomic policy

Tags:  financial regulation, bank leverage