The Framework Of Leverage Ratio Management:Theory And Application

The outbreak of financial crisis in 2007 has profoundly changed people's attitude toward the role of financial factors played in the whole economic system, as well as drives people from the fields of financial practice and financial theory to have a reflection and innovation in such aspects as the monetary policy, regulatory ideal and financial and economic mechanism.In terms of financial supervision, the destructive power generated from financial crisis has significantly changed the concept of global financial supervision. The trend of easing and liberal regulation before the crisis has been reversed to a large degree. In this context, national regulatory authorities have introduced more stringent regulatory measures, and began to establish a more rigorous and comprehensive regulatory framework with the introduction of the Basel agreement III. The robust micro prudential supervision based on a single authority has been unable to meet the requirements of the risk management under the new situation. Macro prudential supervision concept which introduces the whole financial system into the regulation scope from the overall perspective, has gradually been on the rise and slowly began to be normed. Micro prudential regulation needs the guidance of macro prudential supervision, macro prudential supervision needs the micro prudential regulatory guidance, and it has become the consensus for the current regulatory philosophy that these two types of regulation needs to be better integrated. It is one of the economic topics which arises people's attention that how the micro prudential supervision should be better combined with the macro prudential supervision so as to prevent and control the outbreak and infection of systematic risk.As far as the monetary policy is concerned, the old framework is suffering from more and more challenges, and the transforming and upgrading the framework of monetary policy is extremely urgent. Before the crisis, the ultimate goal focusing on price stability is being questioned, thus it came as a common sense that as to monetary policy much more emphasis should be paid on financial stability. Further, if monetary policy really focuses on financial stability, such a series of major theoretical issues need us to have a further research as whether the single instrument regulation system followed, mainly for interest rate can better exercise the functions of monetary policy in the new environment? Whether the new policy instrument can be developed? Whether the existing policy instrument can work well? Whether the transmission mechanism based on the present knowledge can more or less be changed?However, to put the existing data on macro prudential supervision in order, we find that our more efforts have been put into the panoramic analysis of supervision ideal, the ultimate goal, structure elements and instruments under the whole framework of macro prudential supervision, but less attention has been paid to the further in-depth study on the role positioning, transmission mechanism, implementation of a certain policy instrument. Actually, against such a background that the current macro prudential supervision philosophy and implementation bas been on the road to be perfect, this research work tends to be more practical and meaningful. The reason is that the essence of macro prudential supervision is in fact s set of policy mix. In its process of specific implementation, it is composed of more specific sub policy. Therefore, it is better focus on the specific sub policy for specific and definite study because putting policy mix into the whole to discussion its policy structure and implementation will get lost in the dilemma of vague and superficial work.Out of this consideration, this thesis chooses to study leverage ratio, a kind of macro prudential instruments with quite a long history. A reasonable and feasible framework of economic management with leverage ratio as the core can be established by delving into such aspects as determining mechanism, the function mechanism and policy mix of leverage ratio.For the establishment of leverage ratio's management framework, eight chapters are divided in this paper for discourse analysis. This paper first discusses the study background and significance, its whole framework, research approaches, innovative points as well as shortages. In the second chapter, we first give a clear definition on the meaning and management framework of leverage ratio mentioned in the paper, and then we review the relative research literatures on the core issues that we follow. After that, taking America for example, we in the third chapter first review and put our thoughts together the knowledge about how leverage ratio changes worldwide from the long-time perspective after the subprime mortgage crisis in order to explore the change law of leverage ratio cycle and its various impact on economy. In addition, by using descriptive method, we analyze the influence of leverage ratio movement on macroeconomic variants such as outputs, price level and investment in detail. We start the fourth chapter by exploring the core issue-leverage ratio endogenous mechanism from the quantitative aspects. For this, we first establish an abstract framework to explore leverage ratio equilibrium deciding process, then based on it, an analytical framework of leverage ratio cycle is formed so as to research into the implication of leverage ratio movement from the micro level. Further, a detailed discussion will be made in the fifth chapter on the possible influence of leverage ratio management from two aspects--evolution process and theoretical deduction. On the basis of all of the above discussion, the policy implication and structure factors of leverage ratio management will be studied in the sixth chapter. The above-mentioned exposition will be surmised in section 6.4 of this chapter. Besides, we also clarify the implementation mechanism of the leverage ratio management framework, and formally propose the leverage ratio management policy framework and implementation process. In this case, we complete the initial purpose of this paper to establish the leverage ratio management framework. After finishing all these main work, the application of leverage ratio management framework in China is mainly discussed in the seventh chapter. Last but not least, the summary work has been made in the eighth chapter. Besides we also come up with several tasks needed to be answered and the research orientation for further study.