Leverage is underestimated

Off-balance sheet funding is large, rising and not fully accounted for in leverage metrics


This article is a summary of chapter 3 of Collateral Markets and Financial Plumbing (3rd Edition), published this month by Risk Books

The leverage ratio was supposed to be the capstone of the post-crisis capital framework, the ultimate insurance against systemic risk.

At first glance, it appears to have worked. Among systemically important US banks, capital is up and leverage is down. So, is the system safe? Not necessarily.

Traditional metrics of leverage in the financial sector have

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