Though part of “market lore,” Black (1976) first reported the inverse relationship between price and volatility, calling it the “leverage effect.” Without providing evidence, Black (1988) claims that in the months leading up to the October ‘87 Crash the relationship changed: price and...

This study reports estimates of the marginal benefits and costs of increasing the regulatory minimum bank equity-to-asset “leverage ratio” from 4 to 15 percent. Benefits arise from reducing the probability of a banking crisis. Costs arise from reduced lending, should banks pass off higher...