Abstract
The development of the Basel III leverage ratio does not consider the different risk characteristics of bank business models. All banks have to achieve the same requirements even if a high-risk business model is chosen. For that reason, leverage ratios which are adjusted to the risk-profile of retail, wholesale, and trading banks are developed. Based on Value-at-Risk and Expected Shortfall calculations, the left-hand tail of a net return on non-risk-weighted assets distribution of 120 European banks is analyzed. Retail banks are less risky and can withstand financial distress with a smaller amount of capital.
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