While an omniscient regulator would base a bank’s capital requirement upon its contribution to systemic risk, Jon Danielsson shows that a regulator who measures a bank’s contribution to systemic risk badly will find it optimal to use a simple leverage ratio instead. Jon Danielsson is an economist teaching at the London School of Economics and active in domestic and international policy debates.
Dealing with systemic risk when we measure it badly
London School of Economics
February 24, 2019
