European bank leverage still remains very high---some have loans and investments that are valued at 50 times equity capital levels---which implies 2% capital "cushion" against declining values of assets (loans). In other words, if their loan book declines in value more than 2%, then shareholders are 'wiped out' and depositors are put at risk. The total leverage ratio should greater than 5% or higher.
Euro-bank Leverage Is STILL a Systemic Risk
Euro-bank Leverage Is STILL a Systemic Risk
Euro-bank Leverage Is STILL a Systemic Risk
European bank leverage still remains very high---some have loans and investments that are valued at 50 times equity capital levels---which implies 2% capital "cushion" against declining values of assets (loans). In other words, if their loan book declines in value more than 2%, then shareholders are 'wiped out' and depositors are put at risk. The total leverage ratio should greater than 5% or higher.