Tuesday , November 5 2024
Home / Mike Norman Economics / Liberty Street — Blog of FRBNY Leverage Ratio Arbitrage All Over Again

Liberty Street — Blog of FRBNY Leverage Ratio Arbitrage All Over Again

Summary:
Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged.... Liberty Street Economics — Blog of FRBNYLeverage Ratio Arbitrage All Over AgainDonald P. Morgan, assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group; Dong Beom Choi, assistant professor of finance at Seoul National

Topics:
Mike Norman considers the following as important:

This could be interesting, too:

Jodi Beggs writes Economists Do It With Models 1970-01-01 00:00:00

Mike Norman writes 24 per cent annual interest on time deposits: St Petersburg Travel Notes, installment three — Gilbert Doctorow

Lars Pålsson Syll writes Daniel Waldenströms rappakalja om ojämlikheten

Merijn T. Knibbe writes ´Fryslan boppe´. An in-depth inspirational analysis of work rewarded with the 2024 Riksbank prize in economic sciences.

Leverage limits as a form of capital regulation have a well-known, potential bug: If banks can’t lever returns as desired, they can boost returns on equity by shifting toward riskier, higher yielding assets. That reach for yield is the leverage rule “arbitrage.” But would banks do that? In a previous post, we discussed evidence from our working paper that banks did do just that in response to the new leverage rule that took effect in 2018. This post discusses new findings in our revised paper on when and how banks arbitraged....
Liberty Street Economics — Blog of FRBNY
Leverage Ratio Arbitrage All Over Again
Donald P. Morgan, assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group; Dong Beom Choi, assistant professor of finance at Seoul National University and previously an economist in the Bank’s Research and Statistics Group, and Michael R. Holcomb, Ph.D. student at Harvard’s Kennedy School of Government and previously a senior research analyst in the Bank’s Research and Statistics Group
Mike Norman
Mike Norman is an economist and veteran trader whose career has spanned over 30 years on Wall Street. He is a former member and trader on the CME, NYMEX, COMEX and NYFE and he managed money for one of the largest hedge funds and ran a prop trading desk for Credit Suisse.

Leave a Reply

Your email address will not be published. Required fields are marked *