Tales of leverage
Regulators are proposing the introduction of leverage caps on banks. However, Satyajit Das argues leverage achieved through derivatives does not always show up in traditional leverage measurements
There is widespread recognition that the benign conditions of recent years encouraged a sharp increase in leverage within the financial system. Responding to the high levels of debt that contributed to the current financial crisis, the Turner Review - a report on global banking regulation published in March and written by Adair Turner, chairman of the UK Financial Services Authority - proposed a limit on the absolute leverage of financial institutions. This has been echoed by other regulators.
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