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Office of Financial Research Update: "Do Higher Capital Standards Always Reduce Bank Risk?"

Date 11/11/2016

The OFR released a working paper today entitled, "Do Higher Capital Standards Always Reduce Bank Risk? The Impact of the Basel Leverage Ratio on the U.S. Triparty Repo Market.” This paper examines how risk-taking in the repurchase agreement, or repo, market changed after regulators introduced the supplementary leverage ratio for banks. The paper finds that broker-dealers owned by U.S. bank holding companies now borrow less in the repo market overall after the change, but a larger percentage of the borrowing is backed by more risky collateral.

The paper is posted on the OFR website at: https://financialresearch.gov/working-papers/.

The OFR home page is at: https://financialresearch.gov/.