To protect retail investors from the bail-in rule, we propose that banks should issue subordinated "contractual bail-in instruments", as defined in the BRRD, for an amount (together with Tier1 capital) at least equal to 8% of their liabilities. We support our argument by means of a theoretical...

We examine the effects of the recently introduced regulatory leverage ratio, which aims to backstop existing risk-weighted capital requirements, on banks' balance sheets. We observe on average a deleveraging process, while banks simultaneously increase their risk-weighted assets. Having less...

Capital regulation requires banks to hold a prescribed amount of equity relative to their risk-weighted assets. Beyond these minimum requirements, banks usually hold additional capital. In this paper, we argue that a part of this capital buffer represents banks' response to regulatory risk...

The study aims to investigate the effect of conventional capital ratio, risk-based capital ratio, and capital buffer ratio on commercial bank risk-taking over the period from 2002 to 2019 using a two-step GMM method. The finding reveals that there is a positive relationship between traditional...

In the wake of the 2008 financial crisis, bank regulators are paying more attention to derivatives. In a move that can be seen as a step away from fair-value accounting, bank regulators (Basel III) have proposed to calculate bank leverage ratios using notional values, rather than fair values, of...

This paper addresses the trade-off between additional loss-absorbing capacity and potentially higher bank risk-taking associated with the introduction of the Basel III Leverage Ratio. This is addressed in both a theoretical and empirical setting. Using a theoretical micro model, we show that a...

The global financial crisis has highlighted the limitations of risk-sensitive bank capital ratios. To tackle this problem, the Basel III regulatory framework has introduced a minimum leverage ratio, defined as a banks Tier 1 capital over an exposure measure, which is independent of risk...

While simpler than risk-based capital requirements, the leverage ratio may encourage bank risk-taking. This paper examines the activity of broker-dealers affiliated with bank holding companies (BHCs) and broker-dealers not affiliated with BHCs in the repurchase agreement (repo) market to test...