Measuring off-Balance-Sheet Leverage

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.

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Year of publication:	2000-12-01
Authors:	Breuer, Peter
Institutions:	International Monetary Fund (IMF)
Subject:	Capital \| Reserves adequacy \| Economic models \| derivative \| capital adequacy \| hedge funds \| forward contract \| hedge \| capital adequacy ratio \| derivative contract \| derivative contracts \| government bonds \| bonds \| financial markets \| derivative instruments \| derivatives markets \| international capital markets \| capital markets \| derivative markets \| forward contracts \| financial institutions \| option contracts \| bond \| financial market \| derivative instrument \| derivatives market \| international capital \| spot market \| derivative securities \| money market \| equity stake \| risk-free interest rate \| capitalization ratio \| hedge fund \| derivatives market activity \| financial instruments \| mature markets \| treasury bond \| cost of capital \| forward markets \| interest rate derivative \| foreign exchange derivative \| hedging \| bond market \| derivatives transactions \| derivative transactions \| cash flow \| hedges \| financial stability \| financial contagion \| treasury bonds \| option pricing \| capital requirement \| bonds as collateral \| equity investment \| hedge ratio \| interest rate derivative markets \| liquid markets \| financial system \| capital adequacy ratios \| financial derivatives \| hedge fund managers \| equity returns \| capital standards \| exchange traded derivatives \| equity prices \| liquidity crisis

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Extent:	application/pdf
Series:	IMF Working Papers.
Type of publication:	Book / Working Paper
Notes:	The text is part of a series IMF Working Papers Number 00/202 3 pages long
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10005263810