Measuring off-Balance-Sheet Leverage

December 1, 2000

Preview Citation

Format: Chicago

Peter Breuer. Measuring off-Balance-Sheet Leverage, (USA: International Monetary Fund, 2000) accessed September 19, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The simultaneous unwinding of leveraged positions can trigger financial market turbulence. Although balance-sheet measures of leverage are available, it is useful to construct a measure of leverage that incorporates both on- and off-balance-sheet activities. This paper provides measures of leverage implicit in derivative contracts by decomposing the contracts into cash market equivalent components. A leverage ratio can then be calculated for this replicating portfolio, which consists of own funds (equity) and borrowed funds equivalents (debt). Methods for aggregating leverage by institution and by markets are presented. The interaction between leverage and risk is discussed, and a modified capital adequacy ratio is calculated, which captures off-balance-sheet exposure.

Subject: Asset prices, Capital adequacy requirements, Currencies, Financial institutions, Financial regulation and supervision, Money, Prices, Securities, Stocks

Keywords: Asset prices, Capital adequacy, Capital adequacy requirements, Coverage ratio, Currencies, Derivative contract, Derivative position, Derivatives, Equity position, Forward contract, Global, Interest rate, Investment strategy, Leverage indicator, Leverage ratio, Leverage ratio decrease, Market value, Off-balance-sheet leverage, On-balance-sheet leverage, Option contract, OTC derivative markets report, Rate of return, Securities, Stocks, WP

Publication Details

Pages:

37
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2000/202
Stock No:

WPIEA2022000
ISBN:

9781451874396
ISSN:

1018-5941

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