Complexity and Systemic Risk: Hilary Term Seminar Series 2010 cover image

Stability and Complexity in Model Banking Systems

Complexity and Systemic Risk: Hilary Term Seminar Series 2010

CHAPTER

The Importance of Leverage Limits

In the early days of banking liability was not just unlimited, it was often as much personal as financial. In 1360 a Barcelona banker was executed in front of his failed bank to discourage future bankers from excessive risk taking. We've sleepwalked into a world in which leverage of 20 or 30 times capital is the rule, rather than the exception. Now is a good time to wake up. There are a lot of ideas floating around and what I've tried to do, and I have no idea really how successful, and I'm about to learn.

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