Template-Type: ReDIF-Article 1.0

Author-Name: Beata Kocsis
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: kocsisb@mnb.hu

Author-Name: Laszlo Seregdi
Author-Workplace-Name: Magyar Nemzeti Bank
Author-Email: seregdil@mnb.hu


Title: Expected Impact of the Introduction of the Leverage Ratio at the Hungarian and EU Level

Abstract: From June 2021, a new set of mandatory requirements will enter into force in the
European Union for all credit institutions registered in the EU, specifying in detail
the method of calculating the leverage ratio and its minimum level. In this paper,
we summarise the main criteria of leverage ratio regulation, the reasons for its
introduction and the criticisms that have been expressed. We examine the likely
impact of the new requirements as well as the types of credit institutions that
may be most affected, and how the leverage ratio relates to different elements
of the prudential regulations already in place. Through theoretical and practical
examples, we seek to answer the question of when the leverage ratio can become
an effective constraint on capital adequacy requirements and for which institutional
characteristics it can function as their ideal complement. For this study, we have
drawn on the international academic literature on the leverage ratio, analyses by
the European Banking Authority and data available from supervisory reporting.
We conclude that the leverage ratio in its current form does not have a significant
impact on the majority of credit institutions in Hungary, and even at the international
level it will primarily only represent an actual constraint for credit institutions which
operate with a specific business model and low average risk weights.

Classification-JEL: E44, E58, G21
Keywords: leverage ratio, banking system, prudential regulation
Pages: 5-32
Volume: 20
Issue: 2
Year: 2021
File-URL: https://en-hitelintezetiszemle.mnb.hu/letoltes/fer-20-2-st1-kocsis-seregdi.pdf
File-Format: Application/pdf
Handle: RePEc:mnb:finrev:v:20:y:2021:i:2:p:5-32