Kiema, Ilkka; Jokivuolle, Esa - In: Journal of Banking & Finance 39 (2014) C, pp. 240-254
Basel III has introduced a non-risk-weighted leverage ratio requirement (LRR) which complements the internal ratings based (IRB) capital requirements. It provides a backstop against model risk which arises if some loans get incorrectly rated and become toxic. We study the effects of the LRR on...